The key to better trades might already be in front of you
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Hey y’all!
Happy Monday Hope you had a good weekend. And if you still have Christmas shopping to do, it’s time to get serious!!
(I actually have been feeling pretty good about my Christmas list this year, for the first time in ages)...
Anyway: for today’s newsletter, I wanted to get our experts’ take on a particular topic:
What’s one thing you think traders don’t pay enough attention to?
Here are their answers:
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| Risk!
Typical traders chase the gains, and FOMO drives their decision-making. They’re usually terrible with risk management, they're fully invested with very little downside risk.
Traders understanding the benefits of options trading with defined risk and the layers of backup plans and hedging that options trading provides can help offset the big risks when fully invested and highly correlated to the overall market and market sentiment.
Risk is a loaded word when it comes to trading.
As we always remind our traders, all trading involves the substantial risk of loss…
But people look at risk through the wrong lens.
One example of this: the idea of a “100% loss” is often misunderstood.
Look at it this way: which would you rather lose?
| | • | | 100% of a $500 trade | | | • | | 20% of a $10,000 trade |
A lot of traders default to assuming it’s better to cut your losses small, and so they run from risk-controlled strategies where you know exactly what’s on the line before you get in.
But in this case, losing $500 is clearly better than losing $2,000!
So make sure you understand risk before you get into any trade! And make sure your understanding of risk is three-dimensional.
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The left side of the chart.
I get so many people focused on trying to catch a bottom when the chart is literally screaming to STAY THE HECK AWAY from this DUMPSTER FIRE. Price action, reverse splits, years long downtrend or just sideways in a range. Some people bring me tickers that have gone no where for 20 years and ask if now is a good time to buy. I zoom out and just say what makes you think now is different after all that?
A company can be a great company and the price chart be an absolute piece of garbage.
I’ve worked with Jeffry a long time, and I’ve seen him be an absolutely brutal stock analyst — exactly the way he’s talking about above.
People get obsessed with narratives and forget about the history of the stock…
And Jeffry isn’t the only one saying this…
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| I would say longer time frames.
They get zoomed into a narrow view, especially when the market is really bullish and then the SPY corrects 0.5% and people send in comments like "market is crashing today"... Meanwhile on a weekly or monthly chart, it is literally not a blip on the radar.
I think people have consistently missed opportunities in 2024 because it is so bullish by being shaken out of the market on relatively brief pullbacks, and they’ve missed out.
Even the deeper ones like when NASDAQ yanked down 18% was a pretty reasonable correction based on where we were in the market, but to people zoomed into a 1 hour chart it looked like the sky was falling.
This is kind of the inverse, more positive version of what Jeffry is saying.
You shouldn’t get too high on an uptrend or too low in a downtrend.
See the big picture and don’t overreact…
And Geof agrees! | | | | |
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I would agree with that. Back in Aug when the S&P dropped 10% everyone freaked out. And yet, we stayed well above the year open and did not take out April's lows. They are the ones that cause the panic selling in the market from over reacting to short term moves, instead of sitting back and looking at the big picture.
So pretty much all of our experts are reminding you: stay calm and see the whole picture.
Whether it’s with risk, price movement, or even a pullback, taking an extra second to consider before you rush into a trade or an assumption about the market is never a bad idea.
Hope these perspectives help you this Monday!
To your prosperity,
Stephen Ground
Editor-in-Chief, ProsperityPub
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Hey y’all!
Happy Monday Hope you had a good weekend. And if you still have Christmas shopping to do, it’s time to get serious!!
(I actually have been feeling pretty good about my Christmas list this year, for the first time in ages)...
Anyway: for today’s newsletter, I wanted to get our experts’ take on a particular topic:
What’s one thing you think traders don’t pay enough attention to?
Here are their answers:
Risk!
Typical traders chase the gains, and FOMO drives their decision-making. They’re usually terrible with risk management, they're fully invested with very little downside risk.
Traders understanding the benefits of options trading with defined risk and the layers of backup plans and hedging that options trading provides can help offset the big risks when fully invested and highly correlated to the overall market and market sentiment.
Risk is a loaded word when it comes to trading.
As we always remind our traders, all trading involves the substantial risk of loss…
But people look at risk through the wrong lens.
One example of this: the idea of a “100% loss” is often misunderstood.
Look at it this way: which would you rather lose?
- 100% of a $500 trade
- 20% of a $10,000 trade
A lot of traders default to assuming it’s better to cut your losses small, and so they run from risk-controlled strategies where you know exactly what’s on the line before you get in.
But in this case, losing $500 is clearly better than losing $2,000!
So make sure you understand risk before you get into any trade! And make sure your understanding of risk is three-dimensional.
The left side of the chart.
I get so many people focused on trying to catch a bottom when the chart is literally screaming to STAY THE HECK AWAY from this DUMPSTER FIRE. Price action, reverse splits, years long downtrend or just sideways in a range. Some people bring me tickers that have gone no where for 20 years and ask if now is a good time to buy. I zoom out and just say what makes you think now is different after all that?
A company can be a great company and the price chart be an absolute piece of garbage.
I’ve worked with Jeffry a long time, and I’ve seen him be an absolutely brutal stock analyst — exactly the way he’s talking about above.
People get obsessed with narratives and forget about the history of the stock…
And Jeffry isn’t the only one saying this…
Get Jack Carter’s
TOP TECH STOCK FOR THIS WEEK!
I would say longer time frames.
They get zoomed into a narrow view, especially when the market is really bullish and then the SPY corrects 0.5% and people send in comments like "market is crashing today"... Meanwhile on a weekly or monthly chart, it is literally not a blip on the radar.
I think people have consistently missed opportunities in 2024 because it is so bullish by being shaken out of the market on relatively brief pullbacks, and they’ve missed out.
Even the deeper ones like when NASDAQ yanked down 18% was a pretty reasonable correction based on where we were in the market, but to people zoomed into a 1 hour chart it looked like the sky was falling.
This is kind of the inverse, more positive version of what Jeffry is saying.
You shouldn’t get too high on an uptrend or too low in a downtrend.
See the big picture and don’t overreact…
And Geof agrees!
I would agree with that. Back in Aug when the S&P dropped 10% everyone freaked out. And yet, we stayed well above the year open and did not take out April's lows. They are the ones that cause the panic selling in the market from over reacting to short term moves, instead of sitting back and looking at the big picture.
So pretty much all of our experts are reminding you: stay calm and see the whole picture.
Whether it’s with risk, price movement, or even a pullback, taking an extra second to consider before you rush into a trade or an assumption about the market is never a bad idea.
Hope these perspectives help you this Monday!
To your prosperity,
Stephen Ground
Editor-in-Chief, ProsperityPub
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