Teach yourself to fish

Today, I wanted to give my Five Star Traders my top tips as to how three simple focuses in trading (and in fishing!) will help you catch what you’re fishing for. 

Why the parallel to fishing specifically?…

Well a couple of days ago on Twitter, I mentioned how my new hobby, fishing, has a lot of parallels with trading.

Blind Fishing — Like Blind Trading

I’ve always liked fishing, even when I was little, so this year when my family started spending more time at the lake I thought this would be the perfect opportunity to pick that hobby back up. So I set out, worms in hand, and plopped my lure in. How exciting! I could hardly wait for my first bite!

But minutes turned into hours, hours turned into days, and I had yet to see any fish… and even worse, they just kept stealing my worms. How could this be? I used to be able to catch fish all the time (with the help of my dad!), and I knew there were fish in the lake. So what was I doing wrong?

Have you ever started a trade on a ticker, without knowing exactly why, or without having a method behind your actions? 

After several days of failed attempts, I decided to take a trip to our local bait shop for advice. Luckily, this is where I crossed paths with a local named Bobby. Bobby is the store’s expert in everything fish and before he gave me recommendations, he asked me: “Well, what fish are you trying to catch?” 

I was immediately taken back by his simple question because that’s something I hadn’t considered. I just knew I wanted fish! I just thought I could cast a line and fish would be clamoring over my hook. I didn’t care much about which ones.

This is a very common misconception with traders, especially when they’re starting out. They know they want to make money, and they think by simply purchasing a hot stock like Zoom (ZM), that’s all there is to it. However, in trading, especially options trading, it’s all about timing, a setup, and strategy. 

Well, as Bobby explained, there’s a lot more that goes into catching a fish. In order to land your trophy, you must first have a high probability setup (just like in trading).

Setting Up For The Perfect Catch

Bobby took the time to explain to me that without the right bait on the right hook — in the right spot, (a fishing high probability setup), it’s going to be difficult to catch anything. The little fish will eat the big worm right around your hook, and the big fish aren’t in the shallow parts of the lake.

Knowing what type of fish you’re after is the first step. 

In trading, what are you looking for? Are you eyeing a momentum breakout, or do you want slow and steady premium decay?

He told me since I knew I wanted to catch a catfish, I’d be more likely to find them in the channels and shallow coves in the lake — but I needed specific bait. Boom! Seemingly simple advice led me much closer to heightening my chances of catching one. Then, it continued to get more granular from there. 

Trading Tip: You’re rarely going to catch a short squeeze on a volatile ticker at market lows — these appear most frequently at market highs.

Then, it got into the type of bait and hooks I needed. 

Bobby said:

“If you want to catch a catfish, using smelly catfish bait is the best way to snag them, along with a treble hook, and I recommend sinking the hook to the bottom and waiting. If you want to catch little Blue Gills, you’ll need a small hook and a small worm, just hanging off the edge. If you want to try and catch a bass, that’s going to require more skill, along with some bass bait and a casting method. It’s only after all these boxes are checked, that your probabilities of catching your fish become much higher.”

Which Trade Are You Trying To Catch?

The same can be said about trading. If you enter a trade blindly, without a setup, you’ll make it near impossible for you to catch something profitable. Instead, you need to:

1. First identify which type (or pattern) of trade you’re trying to land and then put your setup in place. If you’re looking for a relative strength winner to buy when the market pulls back, I’d look in a hot sector or industry (using the Finding Phoenix setup). If you’re fishing for a ticker with high short interest that has the potential to squeeze short-sellers, look for a ticker with more than 10% high short interest that is 5-10% from a new, all-time high to test the waters for a Short Squeeze. Likewise, if a high probability combination of setups (that equals the master setup) is on the menu, you throw your line out on a Five Star Setup.
2. Identify which strategy you’ll use to trade the setup (my fishing strategy was all wrong, which is why I wasn’t catching anything!). We’ll talk more about this next week.
3. Patience! In both fishing and trading, after you know what you’re looking for and have the right strategy to go about it, it’s all about being patient and waiting for the gains to come to you.

Do you know what your favorite setups are? Once you’ve established a few, you’ll start to recognize specific patterns and you’re going to do a lot better trading, just like in fishing.

Tune in next week when I talk about how to take these setups and apply strategy to them to elevate them even further. If you want to learn more about setups I’ll be hosting a webinar on August 12th, 7 pm Central. I’ll send you a direct link when it’s made available.

And if you’re wondering if I finally caught some fish… The answer is definitely, yes! It took a shift in setup and strategy, but now I’m catching catfish galore! Thanks, Bobby!