Larry’s note: Welcome to Trading with Larry Benedict, the brand new free daily eletter, designed and written to help you make sense of today’s markets. I’m glad you can join us.

My name is Larry Benedict. I’ve been trading the markets for over 30 years. I got my start in 1984, working in the Chicago Board Options Exchange. From there, I moved on to manage my own $800 million hedge fund, where I had 20 profitable years in a row.

But these days, rather than just trading for billionaires, I spend a large part of my time helping regular investors make money from the markets. My goal with these essays is to give you insight on the most interesting areas of the market for traders right now. Let’s get right into it…

During my 35 years in the markets, I’ve learned plenty of lessons along the way.

Some of the toughest (but best) lessons I learned as a trader came from losing money.

One of the biggest challenges I had was learning how to stop myself from trading – instead of trying to jump on every move.

I spoke about this last month when I explained the importance of being patient and knowing when to sit out.

In that essay, we looked at the Financial Select Sector SPDR ETF (XLF), which looked like it was ready for a breakout.

So today, I’m going to follow up on XLF to see how it turned out…

Did sitting out mean we missed out on making a profitable trade?

First, let’s take a look at the chart…


When we looked at XLF, it had rallied strongly from November 2020 all the way to June 2021 (“A”). That’s a major uptrend.

From there, it pulled back before trading sideways in a range (between the two red horizontal lines).

At the time, XLF had just broken through the upper red line (blue arrow).

As I’ve mentioned before, when you see a breakout like that, it can be tempting just to jump straight in.

I know I would’ve when I first started out…

But that’s why I remained cautious – it was just too early to tell.

So, let’s see how things panned out…

As you can see, that breakout turned out to be a false move. It peaked just a few days after I talked about it (“B”) before rolling over and falling lower.

If we’d jumped straight in, we would have lost money.

Then, the same thing happened again this past week… XLF again rallied to another peak (“C”) with yet another move that could lure you in.

However, it failed to continue. And, we would have lost money by jumping into a trade.

It doesn’t take long for a series of smaller losses like this to burn a much bigger hole in your trading account.

That’s why patience is key.

And with XLF – I continue to urge caution.

To be clear, that’s not to say that XLF won’t trend higher from here… Don’t forget, when XLF rallied last November, it turned into a trend that lasted eight months.

But we need to see more evidence of a promising price pattern before committing ourselves to a trade.

By being cautious, there’s always the chance that you could miss out on a profitable trade. And truth is, it can really be frustrating.

However, from my experience, only going for high probability trades is the best way to make it as a profitable trader.


Larry Benedict
Editor, Trading With Larry Benedict

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