I love the game of basketball. I got my first coaching experience in 1985, the same year I became enamored of the stock market.

Over the years, I have coached hundreds of kids. Most of them had fun and enjoyed playing for me, and a number of them have gone on to be very successful. One guy in particular was on my mind recently: Darnell Archey.

I helped coach Darnell when he was 10 years old. He went on to play at Butler University. While he was there, he set an NCAA record. He hit 85 straight free throws. That record still stands today.

I know you are probably asking yourself: What does this have to do with investing? But hear me out.

Darnell spent thousands of hours in a gym honing his skills, training his muscles to repeat the same motion. He was also training his mind. His routine was the same every time he stepped to the free-throw line. Going through that routine prepared him mentally every time he stepped up to shoot.

Trading isn’t all that different. Most of us have spent hundreds, if not thousands of hours, honing our skills and training our mind to recognize patterns and make successful trades. We go through a routine when we are looking for ideas.

Of course, not every trade — or shot — goes as planned. Traders and basketball players go through slumps.

When a basketball player goes through a slump, he tends to shoot his way out of that slump.

And a trader can use the same technique to break out…

Trust Your Well-Trained Trading Muscles

Trading slumps happen to everyone. No matter your trading experience.

I bring up slumps because I’ve talked to a few fellow traders who have gone through a slump recently.

There has been an obvious change in market conditions over the last three months. Trading has become choppy. From the beginning of September 2017 through the high in January, the S&P 500 Index had only three down weeks.  Since the high in January, six out of 12 weeks have been down weeks.

In all of 2017, the S&P 500 crossed over its 50-day moving average only 12 times on a closing basis.

We have already had nine such occurrences in 2018, and we aren’t even a third of the way through the year.

Even though we are going through this change in the market, we can’t and shouldn’t change our routine. If it has been successful for us, which hopefully it has, why change it?

I seriously doubt that Darnell ever stepped to the line thinking he was going to miss a free throw. And that is the same mentality most of us traders have. We never make a trade and think it is going to be a loser. That isn’t what we’ve trained our minds for. We trained them to find winners.

While I have coached hundreds of players, I have coached even more traders. For almost 20 years, I have been writing articles, making recommendations and developing educational programs for investors.

So here is what I would say to anyone who is in a slump or may experience one in the future: Trade your way out.

If your investment strategy is solid and you have been successful with it, don’t abandon it when you are in a slump.

Sometimes All You Need Is to Make a Layup

I recently went through a slump. I had a stretch of five or six losing trades in a row and was becoming a little frustrated.

On April 2, I was eyeing some call options on the SPDR S&P 500 ETF (NYSE: SPY). I had gotten a bullish signal from one of my favorite indicators and felt confident that SPY was going to go up over the next few weeks.

Normally, I set a target gain of 100% on my option trades, but because I had been in a slump, I decided to lower my target on this trade to between 50% and 75%. My target was hit last week.

I didn’t change my routine, and I didn’t abandon my strategy, I simply looked for an easier target. Instead of trying to hit a 3-pointer, I shot a layup and made it.

Almost immediately after I initiated the trade, it started moving in my favor. Once it started going my way, my mindset was better.

I am happy to say that most of the trades I have made since that one are going the way that I want them to go. I wouldn’t say I am “in the zone,” but I am in a much better place, and so are my trades.

The point is this: If you have spent the time honing your skills, don’t abandon your strategy at the first sign of adversity. Everyone in every walk of life goes through slumps. Sometimes you just need to take a little easier shot to get back on track.


Rick Pendergraft

Senior Analyst, Banyan Hill Publishing