lystn

Alright, I think this is going to be a really fun topic to talk about, but the question is really here for this show – Does stock picking work? Let me set the stage here and tell you a quick story of actually what just happened literally like today and why I think this is so important. We recently just sent out an alert to our members to buy or go long basically AAL stock which is American Airlines. We thought just looking at the charts and we got some technical signals that it was going to turn around, so we bought a call debit spread on AAL when the stock closed yesterday around $43. It closed just above $43 and change, we ended up buying the 42 calls, sold the 44 calls, so did this call debit spread right around where the stock was trading anticipating in the next 58 days because we did it out a couple of months that the stock would actually make a reversal or a turnaround or maybe stop declining and rally up. Well today, the stock is up 5.43%. I only say this to say that I’m totally stupid and there is nothing I thought… I did not think that was going to happen. That’s all I can say. I did not think that was going to happen. It wasn’t like a genius entry by our standards at all. It was just straight up dumb luck. I think you guys have to understand this and this is why I want to do today’s show talking about this because running this membership and seeing this community, I get such a good feel for the fact that the markets are so random because yesterday when we entered the trade, I got a flood of emails from people saying, “I think the stock is going to continue lower. Kirk, I don’t know what technicals you’re looking at, but this thing is going to go lower.” In the same light, I also got emails from people who said, “Oh man, yeah. I can see the same indicators. I think it’s going to go higher too.” Now I know. Well nope, not everyone sees it all the same way. But now today when the stock is 5% higher, here are the emails that I think are pretty interesting. One email was, “Kirk, you’re a genius.” I emailed back and I’m like, “I’m not a genius.” I’m publicly saying this on the podcast by saying I’m the furthest thing from a genius because I had no freaking clue that this thing would rally 5.5% today. Nobody had a clue. It was just straight up dumb luck. To answer the question really, does stock picking work? I don’t think it works. I have pretty much the data to prove that stock picking generally does not work. Are there probably good stock pickers out there? No doubt. If you hold stocks long enough, do you think you’d probably make money? No doubt. But can you really, really, really on a consistent basis over and over and over again, a thousand times a year consistently pick the right direction of a stock? Absolutely not! I think that that’s why I love options trading so much because I realize and I recognize that I’m a really bad stock picker. In this case, it worked out really well. In some cases where we’ve gone long something, it might continue to drop for another couple of days before stabilizing and then on the 56th day, it turns back around and it took all month to turn around. But I realized that we’re not good stock pickers and neither are you probably and that’s okay because you can still trade options and give yourself some margin for error. That’s why we generally sell options more often than we buy them. In this case, we just bought them because we just wanted to make a directional move. Implied volatility was super low. We didn’t think that we could gain much of an edge by selling options because it wasn’t much premium outside of the at the money strike prices, so we decided to go bullish with the directional call debit spread. But more often than not, we’re selling options and giving ourselves a margin for error. Use whatever technicals you want, use whatever indicators you want. Moon phases, eclipses, dog sleep cycles, I don’t really care what it is. But the reality is give yourself a margin for error and realize that if something happens good, it wasn’t because you were a genius. It was just because you had a really good struck of luck or that trade ended up working out really well. In the same light, we’re going to have trades that go against us and we’ll talk about those in the future episodes and I’m sure we’ll talk at length in many, many episodes about dealing with those. But look, just realize that you’re going to have trades that go really well early on and you’re going to have trades that go bad early on and that doesn’t mean you’re a bad trader or a good trader. It just means that was the trade. That was the market. The market is just reacting and you just happen to pick that spot in between that scenario. Hopefully this helps out today. I think it at least touched on the topic and answer it. But again, if you guys have any feedback or comments, I’d love to know. Until next time, happy trading!