Happy Friday, friendsâŠ
Traders love to be right. Itâs a natural instinct, this internal need to make a bold call and have it pay off big.
But the best traders in the world donât care about being right all the time. They prioritize making money over being right.
It doesnât matter if you ânailed the callâ on an event. If you didnât make money, you have nothing to show for it.
No one is going to give you a gold star for predicting the outcome without putting your money where your mind was.
On the flip side, if you place a predictive trade and are wrong, youâre now stuck with a loss simply because you wanted to make a brilliant prediction.
This is the risk of catalyst trading, when you take a position based on specific calendar events like earnings reports, Fed meetings, investor conferences, or product launches.
Let me show you the pros and cons of catalyst trading (and how I trade setups around big events)âŠ.
The Best Way to Trade Big Catalysts
Catalysts present a big fork in the road for traders. If you get it right, the payoff can be big.
However, the outcome is unknown, so the trade is a gamble.
Hereâs what I do instead: I wait.
Once the catalyst happens and the initial reaction plays out, thatâs when I look for my trade, becauseâŠ
- The major move has already happened. Now I can see whatâs real and whatâs just noise.
- Knee-jerk reactions often reverse. I wait for confirmation before making a move.
- Implied volatility (IV) drops after the event, making options cheaper.
3 Mistakes That Lead to Bad Catalyst Trades
Instead of betting before the catalyst and hoping for the best, I wait after and trade with the trend.
But if making predictive trades is so risky, why do so many traders still do it?
It usually boils down to one of these three mistakesâŠ
1. Constantly Chasing Action
Some traders think they have to trade every day. Maybe they get bored. Maybe they feel like theyâre missing out. Maybe theyâre just impatient.
Whatever the reason, it leads to bad trades.
The best traders donât make trades just to trade. They wait for the right setups. They pick their spots carefully.
If you feel the urge to trade for the sake of trading â stop. Thatâs not trading. Thatâs chasing.
2. Greedy Positioning
Hereâs a fact: if you buy options before a major catalyst and youâre right about the direction, youâll make more money than if you wait until after the move happens.
Thatâs true. But that doesnât mean itâs a good strategy.
The problem is that the odds arenât in your favor. The market could move the opposite way.
Or the expected move could already be priced in, leading to a muted reaction. Or implied volatility could crush your contracts even if youâre âright.â
Being right doesnât mean youâll make money. And thatâs why greed leads to bad trades.
3. Copying Other Tradersâ Plays
During major catalysts, social media explodes with traders sharing their bets. Everyone has an opinion, and theyâre all trying to convince others that their trade is the best one.
But blindly copying trades is a terrible idea.
You donât know their full strategy. You donât know their risk tolerance. And if too many people pile into the same trade, it becomes overcrowded, setting up the perfect conditions for a rug pull.
Trust your own research. If you donât understand a trade inside and out, donât take it.
Some traders made a killing on last weekâs big tech earnings. But a lot of traders got crushed because they didnât wait for the full picture before making their move.
This is the difference between disciplined trading and degenerate gambling.
If you donât know how the market will react to an event, why are you betting on it?
Let the market show its hand first. Then trade the reaction.
Have a great weekend,
Ben Sturgill
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