I read Bella’s blog on SRS, and he brings up a great point on how important it is to push yourself every day to become better. “Constant never-ending improvement.” I think Tony Robbins once said that. But the reality is the SRS, SKF, and USOs of the world are basically different opportunities for us as professional traders to make more money. If you shun them you are limiting yourself and your potential. Can they be scary? Yes. Will they make you feel uncomfortable? Yes. The first time you look at them you think, there is no way I can make money in them. But there is a simple process I used and learned when, like Bella, the Internet craze started.
First, you need to be prepared. Find out what the heck is the SRS, SKF or whatever ETF or product you are about to trade. What do they represent? Look at long term charts, then work down to weekly, daily, and then intraday. Also, find out if there are any indicators that will help give you the edge of showing you where they might be headed, like the IYRs, SPYs and XLEs, etc. Overlap the charts and see if you can find patterns. Be good information gatherers.
Second, you need to start off by just watching. Be a sponge and learn as much about how the product moves. See how they react to news in the market and the sector they represent. Figure out what kind of range they trade in and what kind of spread they have. Also, learn the potential they have when they finally do move.
Third, try to figure out what the true risk reward is. This means different things to different people, but if I’m wrong, I want to know what I will lose if I buy 100 shares, 200, 1000, 2000 , etc.—and how much I will make if I’m right.
Finally, when I have all this information, I start small: 100 shares. Then as I get comfortable with how they move I start to increase my position size. I was never good at being the person who traded 500 shares one day and then 5000 the next. Everybody’s personality is different, so know yourself and how much to push. One note of caution: like everything I trade only trade the product when it is in play, especially the ETFs that I mentioned. Overtrade these products and you will lose money.
Understand that you will feel uncomfortable at times. That’s good. Embrace those feelings. When I’m out of my comfort zone it means I’m pushing myself to get better. I believe this process can be used not only when trading momentum stocks but for any new product you’re interested in trading as well. By putting this process in place it will save you unnecessary loses and unnecessary emotional trauma. Plus, it will make you a more consistent and well balanced professional trader.
Jtoma