How has COVID-19 affected your trading? We’re all dealing with this volatility of the market, but COVID-19 has caused a gamut of new challenges to our trading and trading plans. There’s a lot of pressure to switch gears into shorting and day trading and capturing a lot of that momentum. But there are new challenges that we are facing during this adjustment period. Kids being home from school is one of them. So the question is, how can we adjust our trading during COVID-19?
Here are 4 Trading tips to help YOU navigate these changes and come out on top:
1. Adjust Your Position Size
One strategy that I’ve been using has been to adapt to changes from the coronavirus is to adjust my position size. For example, to protect from a gap against me, I’ll reduce my position size. If I’m typically risking 1 or 2% of capital on a trade, meaning that if it moves against me and I’m stopped out, that I’m out 1 to 2% of my capital. Then that’s getting reduced from 2% to 1% from 1% to half a percent and possibly even less to capture these moves.
And the good thing about this too is that in such a strong trending market, you can make, in the same amount of time with half a percent of capital or even with a quarter percent of capital, what you would make with positions twice its size. So if you’re trading with a half a percent of capital, you can make about the same amount that you would with 1% of capital, and you’re just making sure that you are protecting your downside.
I think that that’s a big concern here. How do we protect against our downside? It doesn’t matter if you are trading stocks, or you’re trading options or trading any other market too when you’re having these kinds of wild swings. And the way to do it is through your position sizing. And when you see this mass volatility, cut your position size down. Use half of the position size that you usually would. So that way, if you do get a giant move against you, you’re not blowing up.
2. Focus on a Long-Game Mentality
The idea is not to just make huge money on this trade. It’s to stay in the game long enough so you can continue to compound and win the long game. When people talk about winning the long game, they don’t just mean, “Oh, I’m going to put my money into the market and wait five years or ten years.” That’s not what the long game means in this case. In this case, trading the long game is not about trying to make your millions tomorrow. You’re trading to stay in the game for the longest period. That way, if you’re winning consistently, those gains will compound, and that’s how your equity curve is going to keep going up. If you trade the other way, where you’re just trying to win for tomorrow, and you’re trying to dig yourself out of a hole, or if you’re scared, or whatever it is, that’s when you start to compound losses, and it becomes a nightmare.
3. Be Aware of Lag Time
One of the big things that COVID-19 has done to affect my trading is dealing with slow broker transactions. There’s been a lot of lag among brokers across the board. The brokers that I use are Thinkorswim, Interactive Brokers, and Robinhood, and they have all experienced some delay. So factoring that lag into trading, and transactions, and how I’m going to position size, that thing is affecting my trading.
Another issue is the circuit breakers. All these circuit breakers are happening that are just halting trading. That affects how you’re going to trade. The overnight risk of a potential gap up or gap down against a position too makes it a lot more challenging to hold a position overnight. Difficult, not impossible.
4. Adjust Your Trading Schedule
Another big adjustment during COVID-19 is kids or family home from school. My four-year-old daughter has been home from school since the schools were closed in NY, and she will be off for another couple of weeks at least. This affects trading. Thankfully, my wife is working from home as well, and she’s able to watch our daughter due to her more flexible working schedule, but there are still new distractions to take into account.
You need to figure out what your trading schedule is actually going to be.
If you are day trading, you need your trading time to be uninterrupted. You’re dialed into the market. You’re in a state of flow. You need to work out those trading times with your family, or whoever’s around you because now everybody else is at home. So you need to have that real discussion with them and say, “Hey, from this time to this time is going to be trading time.” And it might be a negotiation too or shift changes with your spouse where you might need to adjust what your trading time is going to be, and that’s okay.
You need to be flexible and understanding that this is not forever, but you need to make the necessary adjustments to still stay in the game and be there for your family during this challenging time.
Adjustment Period for Everyone
Don’t be too hard on yourself. This is an adjustment period for pretty much everybody. And as everyone is coping with the changes caused by COVID-19, we want to start taking our time. We want to trade smaller while we’re adjusting to this new environment. And then when we finally do get into more of a routine, more of a state of flow where things are starting to move better, we can start to size up again. But it’s the same thing. It’s very similar to what we were saying before with dealing with the brokers and the circuit breakers too. It’s about managing risk. So as you’re adjusting to new trading hours, having family members at home, having new distractions that weren’t there before, reduce your position size while you’re adapting to whatever your new schedule is. And then once you start to get into a flow state and begin to find your rhythm, that’s when you could start to think about increasing your size, but not before then.
I hope you and your family stays safe and well and if you need additional guidance, check out my coaching page and see if 1 on 1 coaching is right for you.
Here’s the full video I made about these 4 Tips to help you during COVID-19:
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Michael Lamothe founded MARA in 2018, and his mission is to help traders succeed in the market by focusing on mindset. Michael has helped thousands of traders through his methodology. He is an international speaker, presenting at AAII, Stocktoberfest, Benzinga’s Global Fintech Awards, and more! He’s also been featured on NASDAQ Live.