Andrew’s note: Andrew Miller here, managing editor at Trading With Larry Benedict.
While other investors are struggling to find safe stocks, Larry is taking advantage of volatility with only one ticker. And so far, he’s crushed the markets this year.
Click here to learn how you can potentially make all the money you need – no matter what happens in the stock market – using just one ticker that Larry recommends.
Last week, the economy officially went into a recession.
So, the last thing you might expect to see are the major indices rising.
Yet, that’s exactly what’s happening.
The S&P 500 is now trading around 15% above its June low. The Nasdaq is doing even better – it’s up 20%.
If you traded off the news cycle instead of watching the charts, you’d be short the market right now and getting buried.
You’d also be feeling a lot of confusion.
But as we discussed last week, focusing on the things we can control (not the news cycle) helps take a lot of confusion out of trading.
Today, I’ll expand on this theme by sharing more tips that helped me make it as a trader…
Don’t Over Complicate It
New traders are often overwhelmed with anticipation…
It’s hard to know where to start when there are so many markets to trade and so many opportunities.
When I first started, I was so eager to establish myself that I jumped onto just about every trade I could.
However, painful lessons – like blowing up my trading account multiple times – quickly taught me this was a low-percentage way to trade.
First of all, there are just so many stocks, sectors, indices, and commodities that no one can follow them all… let alone trade them.
Also, markets are just too competitive.
If you think you’re going to beat someone who trades a single product every day of their life, then you’re kidding yourself.
Instead, by focusing on just one thing (in my case the S&P 500 index) I started to really learn what made it tick and how to trade it.
That’s exactly how the big institutions and hedge funds approach trading. They’ll have one person, or even a team of people, specialize in just one part of the market.
Not only is it about understanding what fundamentals make a stock tick…
It’s also about gaining an understanding of the money flow and momentum. Like knowing not to buy into a stock or sector when “big money” (like hedge funds) are heading for the exits.
Now, with so much information available and so much to process, sticking to one stock or product makes the most sense – especially with markets so volatile.
Another big challenge can be locking in the style of product you’re going to trade…
Choose a Product and Stick To It
Once a stock or sector is locked down, the next thing we must determine is the product we’re going to use to trade it.
Are we going to stick with regular stocks or are we going to use options?
Whatever product you use, the first rule is you must always understand it.
However, picking which product also comes down to your underlying strategy.
For someone who plans to buy and hold stocks for years, then buying an option is typically not a suitable strategy. Time decay will likely eat up too much of the option’s value.
However, for someone like me who likes to trade in and out of the market (sometimes on the same day), options offer the opportunity to increase returns compared to just buying stocks.
In addition, options provide the possibility to trade a stock or index in both directions. And with the way the markets are right now, this vastly increases our chances of making money.
Yet, shorting a stock to capture down moves can be much harder to set up for retail investors.
So, it’s important to understand whatever product you trade.
You’ll greatly increase your odds of making it as a trader, if you stick to a single stock or sector and use a simple strategy.
Once I fully understood this concept, my trading career really took off.
Editor, Trading With Larry Benedict
Have you profited more by being a buy-and-hold investor or by trading options?
Let us know at [email protected].