One of the more fascinating aspects of the financial markets is how two traders can assess the same set of data and arrive at entirely different conclusions. While one may craft a compelling bullish argument, the other may settle on an equally convincing bearish pitch. With enough persuasive prowess both viewpoints may draw many followers into their ranks.
It seems one could make the case for or against virtually any viewpoint or strategy depending on the objective. For example, if I sold a bearish newsletter I would no doubt discount any bullish news while trumpeting the slightest bearish developments with much fanfare. On the other hand, were I in the business of selling hope to the masses I would frequently gloss over any bearish developments while championing the bullish. Some cling to one idea or strategy and beat their proverbial drum day in and day out.
Consider an illustrative example in the options market. Perhaps one of the most frequently touted advantages to this niche of trading is the versatility; the fact that options give you tons of options – strategies for every environment. While such a fact is certainly a compelling advantage, one which I’ve preached numerous times in the past, if used improperly it can become a stumbling block to your trading performance.
One of the more widespread misuses falls under what I would call Strategy Hopping – the tendency for traders to jump from one strategy to the next after experiencing a few losing trades. Rather than taking the harder, more effective approach by tinkering with their trading plan and mastering the strategy in use, they opt instead to jump to some other strategy which they perceive offers easier profits. Little do they know the key to profits isn’t one particular strategy, but rather trade and risk management. All too often traders use the preponderance of strategies available in the world of options as an excuse to continually search for something easier.
While there is value in having a few strategies in your bag of tricks, don’t embark on a never-ending quest for easy profits by incessantly strategy hopping.
For related posts, readers can check out:
Risk Reduction – Pick a Door
Step Into a New Dimension
An Option Trader’s Thought Process
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Tyler,
Agreeing with your post, I’m amazed by how many new traders believe that choosing the correct strategy is all there is to playing this game.
Strategy is important, but it’s merely the price of admission into the arena. Once you have your trade, risk management is far more important than which strategy (which group of options was traded) was chosen.
Yeah, it is interesting. Many are willing to learn the basic structure of a strategy. Few are willing to dig deeper and really master how to manage the risks involved. And yet fewer are willing to sit through multiple difficult months for a strategy without jumping to something else they think is better.
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