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…
When you’re starting out in the markets, sometimes the hardest thing is working out where you fit.
You read about legendary investors like Warren Buffett and wonder if a buy-and-hold strategy is the best way to go.
But then you read about some of the more famous traders who’ve made their fortune in a fraction of the time…
Who can forget when George Soros famously broke the Bank of England, scoring over a billion dollars in just a few days?
Reading a story like that can make you doubt your buy-and-hold strategy.
But one of the reasons most folks get confused is that they don’t know which camp they’re in. They get lost somewhere in the middle between being an investor or a trader.
They buy a stock “for the long-term,” only to panic and dump it the first time the market takes a tumble.
Believe me, we’ve all done it. Even if we don’t like to admit it…
For me, I’m firmly in the trading camp. The idea of owning 20, 30, or even 40 stocks for decades just doesn’t appeal to me. What happens if five go up and the rest go down… how do you know which ones to cut?
Or, how about when the markets go through major corrections like the dot-com bust or the sub-prime mortgage disaster? How do you know you’ll still be holding onto all those stocks when you come out the other side?
You simply don’t.
But perhaps the biggest clincher for me is this…
A study from the University of Arizona looked at the performance of more than 61,000 stocks between 1990 and 2018. Their conclusion? The best-performing 811 firms accounted for the entire amount of wealth created. That’s 1.33% of the total number of stocks.
In other words, you simply can’t know that a basket of stocks you pick – or even just one of your picks – will be in that 1.33%… It doesn’t matter how much time you spend studying them.
That’s why trading has always been my thing.
I’m not committed to any one sector or stock. I’m not reliant on the market only going up either.
As a trader, I can make money when the market is going in either direction… even sideways.
Trading Is a Business
Unless you have very large sums to invest – or can pick that 1.33% of true winners – then living off stocks is going to be a real challenge for most.
After all, dividends usually only come around twice a year!
Plus, are you really going to feel comfortable having all your money tied up in stocks if the market goes through a long and painful correction?
Trading, on the other hand, is a very different mindset. You’re not there to wait for complex economic theories that may take decades to play out.
Instead, you go to work each day with the sole purpose of making a profit. Your goal is to grow your trading pot little by little.
It might be as little as a $50, $100, or even $200 profit per trade…
The point is, once you can consistently make profits and build up your account, you can always increase your trading size later.
That’s the way I’ve always approached it – along with most traders I know. To be successful at trading, you need to set very specific goals… and realistic ones.
As a floor trader at the Chicago Board Options Exchange (CBOE), I set myself a daily target. In turn, that set my weekly goal as well. I knew at the close of every day if I was on target.
Quite simply, I viewed that weekly goal as my pay check. If I didn’t reach it, it felt like I had worked all week for nothing.
Later, when I set up my hedge fund and was managing close to a billion dollars, I approached trading exactly the same way.
I got each of my clients to write down exactly what return they expected. Then I got to work making sure that would happen.
Every day I’d trade the market, collecting a bunch of tiny profits that added up to big results. Just as I did on the trading floor all those years ago.
See, that’s where most new traders fall short. They want to make a bunch of money by betting big on a single trade. Soon enough, they blow up their account.
However, by sticking to daily profit targets – even small ones – my hedge fund enjoyed a 20-year winning streak. That was enough for Barron’s to rank it in the top 1% of hedge funds.
I don’t write this to brag about my results…
I’m simply telling you this because from over 30 years in the markets, I’ve learned what’s going to give you the best chance to make it as a trader…
It’s all about making a large number of smaller trades, rather than a small number of larger trades. Only then can you enjoy long-term success as a trader.
Editor, Trading With Larry Benedict
P.S. Very few traders understand how to build their account… They shoot for the stars on a single trade, blow all their capital, and give up trading.
However, there’s a rare event that’s fast approaching that can allow even the most conservative trader to win big… It’s a period of increased volatility that occurs like clockwork every quarter. I call it “the 7-day blitz,” and it’s one of my favorite times to trade the market.
If you know how to trade it, you can make more in a week than some traders make in a year.
To show you how it works, I’m putting on a special presentation this Wednesday at 8 p.m. ET. All you need to do is just sign up right here so you don’t miss out.