lystn

Hey everyone. This is Kirk here again at Option Alpha and welcome back to the daily call. Today, we are going to be talking about what I refer to I guess as the dentist adage for traders which is, “One trade a day keeps the black swans away.” We’ve all heard that kid’s tale or kid’s phrase that you would say to your kids like, “One apple a day keeps the dentist away.” But I think in trading, it is truly at least one trade a day on average that keeps black swans away. And so, I think this was timely because as you know, we’ve just been going through a lot of turbulent market movements. We’re starting to see markets really, really pick up in the speed and velocity in which things are moving in both directions. We have days now where we’re making 100 point moves within the same hour on the DOW and the SaP and it's crazy. What I always tell people and I’ve told people for a long time is that what we need to do as traders is realize that market direction becomes more and more meaningless, meaning it’s not as important the more often and the more frequent you trade. It's just really as simple as that. To use this as an extreme example on both ends, let’s say that I gave you the opportunity just to make one single trade, one single trade in one single index or stock, but you had to hold onto that position no matter what happens for the next five years. You couldn’t adjust it. You couldn’t get out of it. You couldn’t reverse the trade. It was one and done. Now, of course, that’s a total extreme example, but it proves the point of what I’m trying to tell you and that is that that one entry that you have then becomes everything. It is the most important factor, is picking the right time to get into a security, whether it's the bottom or the top, however you want to trade it. You’ve only got one shot. And so, what people do often in just regular stock trading and investing is they do this. They basically decide to invest and then they invest everything at one time or a big chunk of it at one time or a couple of times during the year and then yes, timing becomes super, super important. It’s no wonder that people try to look for timing mechanisms or they try to read articles about how to time and how to trade the markets because their entries becomes super, super important. Now, on the further end of the extreme spectrum, you have high frequency quant funds and high frequency hedge funds that are trading thousands of times during the day and are just scalping little profits all over the place. Now, we can’t do that as regular retail traders. We don’t have that capacity yet. But the reality is that they end up neutral pretty much every single day. They’re getting into and out of positions all the time. No matter where the market goes, they’re just following the market. They have so many entries and so much frequency that market direction becomes meaningless to them. Now, of course, they could get hit on one move or a different move and different products, but ultimately, it smoothes out. Ultimately, the noise dies down and the volatility in the account dies down and you have much more stable growth long-term. I’m not saying that you can’t have swings in your account because we have swings in our account for sure. But what I’m saying is that it becomes less and less of an impact the more frequently you trade. That's why we talk about laddering. That’s why we talk about trade frequency as being a huge important determinant to success because it starts to solidify the probabilities and solidify your numbers. But that to me is what I think keeps black swans away. If you can trade during a black swan event which I think that what we went through in early February could be considered like a mini black swan event. Nobody saw that coming. I mean, we were talking about that coming and we had risk defined positions on, so we were well positioned for that type of a move to happen. But even during that event, you still have to trade on the way down and I think that that’s a huge part of being successful, is just keeping that trade frequency up and keeping your position size small, so that no one big collapse or position ruins you. If you feel like you can’t sleep at night because of your positions, then they’re probably too big. That’s what I’ve said oftentimes. Hopefully this helps out. As always, if you guys have any comments or questions, let me know. Until next time, happy trading!