The bull market had a fantastic run, more than six-and-a-half years, but it died in 2015. That's nothing to fear, just the nature of cyclical markets.
Now, the bull's end could be bad news for buy-and-hold investors, but for traders, the opportunities will be just as juicy as ever. Even more so, because we'll be trading events that have the potential to generate truly stratospheric returns in a short amount of time.
That means today is the perfect time to brush up on our tactics, change our investing rhythm, and develop a trading plan and mindset that will make us money - and plenty of it - in 2016.
So let's get started...
Money is great, of course. It is the hallmark of a successful trader, and profit is of course the ultimate goal.
But it isn't necessarily the most important goal. While money and profit are important, they can also come with baggage, and they can make us vulnerable to the kinds of emotional decisions that can lead to ruin.
The best, most successful traders in the world love to trade, and some even view money as a kind of fringe benefit. So it's very helpful to view trading as its own reward to cultivate that "love affair."
As it is with anything truly worthwhile, trading requires some sacrifice and commitment. But when the gains start piling up, you'll be glad you put the effort in.
There are basically two types of traders out there: directional and non-directional traders.
Directional trading is fairly straightforward. You take in the facts about a stock, decide with conviction whether it's going up or down in the time frame you're considering, and then go long (or short) - all with a strategy, like hedging, to minimize or mitigate your risk. The directional trader is concerned more with price, less so with volatility. These traders will pay less for an option trade, but they will really need the underlying asset to cooperate by heading in the right "direction."
Non-directional traders are concerned more with short-term patterns of volatility, not price. They're looking for the price of the straddle or spread they've planned to move up in value if they've bought the option strategy with a debit, or move down when they've sold the option strategy for a credit. A non-directional trader wants the price of their spread to move in the desired direction with overall volatility, not price.
Now, it's possible for a person to be both, but that's rare. It's best for beginners to pick a style and work towards becoming proficient at it.
This is where it's important to take your lifestyle and other goals into account. Trading to build for a retirement or a dream vacation and trading to pay a mortgage and get food on the table require vastly different commitments.
If you work 60 hours a week at another career, it's realistic to say that you won't become a day trader. In fact, I know someone who tried to juggle a career and day trading activities and ended up losing his trading account and his job. He wasn't able to fully commit to either.
On the other hand, you don't have to be glued to a trading terminal to be really successful. Plenty of successful traders trade just once per day - or even less.
Where to ply your skills is important, too. Stocks, futures, commodities, options, forex, derivatives... Each of them has their own unique challenges, vastly different risk-to-reward profiles, and demands on your time.
Forex, or foreign exchange, for instance, is extremely time-intensive, and the market is notorious for throwing off even the most flexible schedules. If you live in, say, New York, and you're trading in Japanese yen, you'd better be able to keep Tokyo hours if you don't want to lose your shirt. And forex traders need to be hypervigilant and hypersensitive to even the smallest moves in the market, as the risks are mighty steep. Those risks come with outrageous profits, though, which is why forex is so popular.
I've heard lots of people say "I trade everything," or "I trade what's profitable." In my view, that's a mistake. It's like being the clerk, stocker, butcher, baker, cashier, and manager all at once; you can run yourself ragged and not make a dime on anything. Don't try to become a jack of all markets, rather do your best to master one.
I prefer the options market. I love data, and I love applying it to my trades and building a thesis...
The best traders have a plan of attack. They formulate a profit goal against how much capital they have to risk and look for the best risk-balanced way to meet that goal.
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And then they consider what they might run into along the way, like current market conditions, volatility, earnings outlooks, and even politics. It's also a good idea to weigh your chosen approach against the successful (and not so successful) strategies of other traders.
The plan's not over once you execute the trade, either. It's important to keep a close eye on your trade and how it's going, making sure your entry and exit points are still valid, that they're still going to get you the profit you want given current market conditions.
The plan is still in effect once you hit your profit target and close out your trade. It's important to think about what you're going to do with the profits. Will you bank them or set them to work on another trade with even less risk? Are those profits going to have the best possible tax advantages? These are all very important considerations to deal with once your trade has paid off.
Having a methodical, unemotional plan and solid data makes you a better trader, with an incredibly powerful "leg up" on the competition.
I'd like to leave you with one final thought about taking responsibility for your trades - that's crucial to maturing as a trader.
No matter your trading style or the market you're in, some trades will go the other way. If you use proper risk mitigation, your losses should be relatively small in comparison to your gains, but those losses can hold powerful lessons that more than make up for any money lost.
Don't try to chase a trade - especially one that's gone wrong. There's always another opportunity just down the road.
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