The Unpredictable Stock Market
If there is anything I learned from trading in the stock market since 2012, is that it is hard to predict to the point that I do not predict what will happen. Instead I follow it. I am a trend follower and not a direction predictor. All my actions are based on the current trends and I continue to monitor and watch the trends and trade according to it's movements.
Up, Down, or Sideways
There is no other direction any stock will go. It is either one of the three. And in stock trading, the common rule you'll hear is buy low, sell high, just like any other business that needs to make a profit. It is a basic rule. It may sound simple in theory, however when you buy with the anticipation to sell high, but the stock goes lower, then you are not making money. And even if that sounds simple to avoid, but not everyone is able to do it consistently. Including myself in the beginning.
Eventually I learned about shorting stocks where you can make money while the stocks go down. But similarly, if you short a stock and it does not go down and it goes up, then you are losing money as well.
Then even if you trade stocks long, or short, if it goes sideways, then you are not making any money. But when I learned about Option Trading, I learned strategies to make money in any direction. And even if you make a mistake in the direction, there are mitigation methods to minimize lose or even to make money even if you are wrong.
Vertical Spreads and Iron Condors
My main go to options trading strategy is to do Vertical Spreads, which are also call Credit Spreads. And more specifically, they can Bull-Put Spreads or Bear-Call Spreads. While a combination of both the Bull-Put Spread and Bear-Call Spread, turns in an Iron Condor.
If a stock is bullish, then I do a bull-put spread. And if it bearish, I do a bear-call spread, and finally if it is going sideways, I do an iron condor.
If ever I made a mistake, when I thought the stock was bullish and I did a bull-put spread and the stock went down constantly everyday, then I convert the trade into an iron condor, plus I add more contacts to the opposite trade, the bear-call spread for mitigation and I still make money. And I simply do the reverse on bearish stocks.
How is this done?
That's the longer story, for now, I am just letting you know that you can earn money in the stock market in any direction the market or a stock is going. By doing credit spreads and iron condors. And go ahead and follow for more details coming in the next post.