A New Strategy in These Difficult Trading Days

By Tyler

​I have been thinking the past few days about what is the best way to trade in a market like we are in now, a market that has never existed before with a pandemic and election going on. I know many of our traders are not feeling confident in how things have progressed over the past few months, it has been hard to trade. I will outline a strategy I suggest you try as I have started using it myself this month. When we're looking at the track record since July when I started keeping track of our trade performance, it doesn't match how many of us feel. We have actually had more winning than loosing trades.

This made me start thinking about how it is we are consistently gaining on trades according to the track record yet many of us are either losing money or spinning our wheels in the same account balance range. In no market will we as traders get every trade correct, if that were the case we would all be living in beach houses in Bali right now, retired. This is trading. It is hard and gut retching but if you can handle it you have the potential to make a lot of money.

So what can we do to ensure everyone does well? My thoughts are this: as we are trading in a difficult market and we do not need to be taking big risks. There are so many unpredictable variables in the economy right now. As we outlined in this post on the website on 8/26, http://www.wadeassurance.com/speculation/sentiment-trader-struggles, only 59% of S&P 500 members are trading higher than the 200 day moving averages yet the S&P 500 is near record highs. How does that make any sense? Simple answer, it doesn't in a normal market which we are not in. The Fed is allowing increased inflation and historically low interest rates while we continue to talk about a stimulus package in a range of $500 billion to $1.5 trillion in value. Who knows what they will decide on or when. Soybeans and corn are in their worst time of year for price seasonally and we will have the third highest carryout over the past 10 growing seasons yet price is skyrocketing. None if it makes sense, so if we are going to trade during this time we need to be doing so cautiously. 

One thing I have noticed is that after a profitable trade many let their guard down and decide to go bigger with more contracts. In addition, it seems like after every good trade we lose the next one. So we hit a good trade, then go bigger and end up losing all our previous gain. It is easy to do, I have done the same thing. It is human nature, it gives you a sense of reward and you want more. To avoid this I recommend to trade a consistent number of contracts. I am trying this strategy myself to see how it works. This way we are not risking much and are giving ourselves a higher chance of earning money as long as we hit half or most of our trades which we have done looking at the track record. Here is an example: if you want to trade 1 coffee contract then also trade 1 soybean, 1 corn, and 1 sugar. If you want to trade 2 coffee, then trade 2 of everything. This will give you a consistent chance to make money on some trades, you will lose on others.

​Again, we will not get every trade right but this strategy can help mitigate risk in a market that is unpredictable. We do not need to be taking big risks in the market we are in. Their is no telling when the market will normalize. I am guessing hopefully after the election but that is an educated guess. This is a recommendation for a strategy from me, do not feel pressured to trade like this. You have control of your account but this is something to consider.