Aesop’s fable about the turtle and the hare applies to options trading as well as to science. That’s right – researchers have proven that the slower, calmer animal will win the race in the long run. Ergo, if you want to be successful in trading options for income, be the turtle when it comes to following new market trends.
What if you are the rabbit?
The business media have an insatiable need to report new market trends first, even if they are not really new … or a current trend. Sure, it makes you look good, but does it happen if you follow her lead?
In trading and investing, the rush to be first often leads to false starts, traps, and reversals. Most of the indexes have been making a nice staircase to / above all time highs recently. The Market Doomsayers were in place (and still are) saying the markets had peaked and were doomed. As we know all too well, the last top is the most important. It’s nearly impossible to properly time a market high unless you’re a lucky guess.
News flash: Guessing is not a good strategy for trading or investing – at least if you want to build your wealth. Trying to time twists and turns and events often has dire results. Economists see it similarly. This is why economics is often referred to as the dark science.
The motivation to get new market trends right is very different from the motivation to be the first. The overly confident predictor (the rabbit) wants to be the first to recognize a change. What they don’t tell you is that they are not confident that the “trend” will continue. They jump in first and often first out. Do they tell you when they pop out? Of course not. Are they making money? Sometimes.
Be the turtle in following new market trends
Meanwhile, the one waiting to be right (the turtle) seeks confirmation before jumping on new market trends. The turtle’s patience pays off. When they get into a new trend, their confidence is high that the trend will continue.
Last week, the markets fell sharply towards the end of the week. On Friday we saw confirmation of a short-term downtrend. If you got on too early, you probably had to live with some pain before going down. If you wait, you can step on board with greater confidence that your trade is working. (And if you were smart, they added some index puts for protection.)
This downtrend could last a little longer. The trend will change again, and probably very quickly. My advice is to be the turtle and not the rabbit. Wait for the move to take place, confirm the new trend, and then take YOUR step.