Success is about perseverance

First, you have to envision yourself as having reached the success simply because you have to BELIEVE that you can make it to keep on going during the rough periods. I have been trading options since 1995, and the early years were easy. In fact, I entered the field of options because from my stock trading I learned about the Elliott wave and wanted to take better advantage of what I learned. Then when the bear market of the early 2000’s begun, I could not easily make the transition from bullish to bearish, so I decided not to risk my lofty gains of the 90’s. I stopped trading until the fall of 2002, when I attended my first Optionetics seminar.

I had decided long ago that options, as a concept, was the way to riches, if only I could combine the right strategy with some kind of system. I knew this because I had already once made a great deal of money simply by buying calls in the 90’s. The most important features of options are: limited risk and leverage. I, thus, embarked on a quest for a system to produce more winners than losers, and that minimize the amount lost. I could put those lofty gains of the 90’s, sitting on CD’s, to work again. I worked in vain for 4 more years, just struggling to avoid losses. I think I was getting exactly what I was looking for: minimizing my loses per trade. I tried everything you can imagine, from vertical spreads and collars to double butterflies, all in association with very sound opportunity locators (search, scans, etc.). Last year, I grew my account by 30%, so I thought I was finally out of the woods. So far this year, I have made over 55% on my money. I believe that this year’s performance is a confirmation of last year. Thus I can confidently say that I have reached success. Best of all, I know I can keep on applying my system under different market circumstances and get similar results.

My goal is not just to boast, but to try to get into my own psychology and relate to you how I felt in different times, as a way to show you a psychological road map to success too. I felt down and I felt angry, I felt frustrated and I felt taken advantage of by those who promised big rewards quickly. I think this is what hurt the most. I thought that I was just too incompetent to reach what for others was ostensibly easy and quick. Ironically, I know better now. Listen to the “trader interview” podcast in iTunes and you’ll find that my case is quite typical. Most successful traders in this show say: “it took me 4 years to gain the confidence I now have”. Well, I started my quest in earnest in late 2002, and first begun to make progress in early 2006. That is a little over 4 years. Mind you, I had already been trading for years before that, only in easy markets that could have made anyone a winner. But my new experience sets me apart from most in that I went about the task of finding a combination of fundamental and technical analysis and options’ theory to come up with a strategy that could:

1. Limit losses by reducing the number of losers, and minimizing the amount lost.
2. Take advantage of the two powerful features of options: leverage and limit risk.
3. Recognize unique opportunities. In my case, I learned to pick momentum stocks.
4. Permit me to use large sums of capital with peace of mind.

I know understand that it took me so long to find my way because I was not interested in simply “making money”, but I wanted a system that would be consistent, safe and not just a gamble with long drawdown periods. You may say, I wanted it all, which is a very tall order, to be sure. I soon find out that no one would hand you the key to such paradise, or even if someone did, there is no guarantee that it would work for me. In fact, I found that most “systems” offered by others were lacking on specifics, and generally did not connect options strategies with entry signals and money management rules to make a complete system. Then again, even if they had such a system, would I be ready to receive it? Would I be ready to put it into practice? When you buy a system, they will tell you that you could make high returns, but when you first put it into practice you soon find out that it won’t work. Why is that? Shouldn’t you be able to just turn the key and begin to make money?

I have found that to try to reproduce the no-fail systems that others proclaim as the way to riches, I only met frustration and eventually gave up on them, even after spending thousands of dollars in software, training videos, etc. Why is that? Here are some possible explanations:

1. Superficiality. I refer here to the description of the “system”. Let’s say someone tell you that you could pick stocks that move (in either direction) 30% or more in a single day. Is that all you need to now that you’d be a winner? What do you think about stocks that jump 200% in daily average volume? Is this sufficient information that can be transformed in profits? Probably not.
2. Ignorance. I refer here to the lack knowledge of the trader buying the system. You need to have a clear understanding of fundamental and technical analysis as well as greeks and the proper options strategy. You need to know for example, what are the reasons for the big drop or rise in the stock. You also need to choose a proper options strategy that is best suited to the conditions described. Would you buy a put on a stock that just fell 30%? This is probably not a good choice, unless you understand implied volatility.
3. Blind faith, or lack thereof. If you are going to use someone’s system, you have to follow it to the letter. Otherwise, you could not bring into question its validity. This is very hard to do. My own tendency is to chance the method to better suit my beliefs or to use my favorite indicators. Unfortunately, the creator of the system may have tested it with his conditions alone, and cannot be responsible for the system that is now yours, not his/hers any longer.
4. Changing market conditions. Markets go from bullish to bearish, from high volatility to low volatility, from overbought to oversold, etc. What worked yesterday, may not work today. Back in Aug. Volatility spiked so high that virtually all of my PCCRC made money because the trade is volatility-dependent. Soon thereafter, it was hard to find good candidates until volatility begun to decline again. It may well be that the system you bought and put to work very quickly may have hit a dry period, thus increasing your frustration causing you to put aside the “system” that may have caused you hundreds of even thousands of dollars.
5. Poor psychological status. To make any system work, you have to persevere, understanding that there is a learning curve that could last as little as a few months, but that in most cases could last years.
6. Lack of preparation. Earl Nightingale says that the uninitiated refers to successful people as “lucky” but the reality is that successful people make their luck because “success is where preparation and opportunity meet”. We know that opportunity is there all the time, particularly in the stock market. If a company reports earnings that beat expectations and further raises guidance going forward, it should be inevitable that the stock will go up, sooner or later. This is our opportunity, but how do we take advantage of this opportunity is a big question. This is where preparation comes in.

The most important ingredient to success is PERSEVERANCE. I like to say that perseverance is active patience. Perseverance is active because you must be working to polish your craft. Perseverance is patience because you have to stay with it long enough to make it work. You need to love what you are doing to persevere because if you don’t, your patience will run out quickly and you’d move on. I love he puzzle quality of trading. The unveiling of the mystery behind is the progressive realization of my goal. It happened to me that I endeavored to stay in the game, to realize my goal and suddenly, almost unexpectedly, I met success at a time like any other (see Thoreau’s quote below).

I have posted hundreds of articles this blog and videos in my private blog so that you can also reach the level of returns that I have. But understand that there are many factors that may make my form of trading suitable to your style. You can still learn a lot from what I have posted. Perhaps you will come up with your own variation of my approach. In either case, take your time to study the approach. Make sure that you have considered all the rules that I have laid out for the PCCRC system. Then you can begin to modify it to suit your trading style. Perhaps you’d do better than that, and create your own, completely different, knowing the weaknesses of what I have done. Perhaps you’d be kind enough to share with us too.

I DO believe that “what everyone else does is not the best way, it is the average way”. That means that to be rich, you have to come up with something completely different from the average, because the average trader gives up rather quickly. You have to have faith that you’ll eventually succeed if you stay with it. Studying, back-testing, paper-trading, and observing are part of a process that would lead you to take advantage of the markets like no one else does, and that should be the ticket to riches, in my humble opinion.
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I have learned, that if one advances confidently in the direction of his dreams, and endeavors to live the life he has imagined, he will meet with a success unexpected in common hours.
Henry David Thoreau