The strange thing about trading is the vast majority of traders lose money. Most studies put it at 90% as the amount of traders that are unprofitable in the long term. How can this be? The majority of traders are trading on emotions and predictions instead of what is really going on. They are going short monster stocks AFTER the stock has broken out to new highs having overcome all sellers right when it is about to explode upwards, instead of making the money in the trend they choose to fight the trend. The 90% that lose think fallen leaders are great deals and buy not understanding the over head resistance that lies on the way back up with all the people that lost money waiting to sell and get out when certain prices are hit as the stock rises creating selling pressure. The 90% tend to finally give up and buy a stock after the run is over due to running out of buyers in time to get the reversal. The 90% risk too much to make too little. They care more about opinions that what is really happening with price action. Their trading is more about ego than profits. The winning 10% generally do the opposite of the other 90%, the 90% is where their big profits come from because they are the ones on the other side of the bad trades.

Here is what I do differently:

  1. I trade the long side of the very best stocks in the stock market, the world changers, all time high chasing, high earnings expectation having, sales growing, monster stocks. I stay away from going long mediocre stocks.
  2. I buy the leading stocks when they overcome key price resistance points, I do not “Wait for a pull back.” I will pay up instead of missing a move. My favorite buy point is 52 week highs not 52 week low bargains. Quality is expensive, junk is cheap.
  3. When I trade options I use them like stock, I buy weekly or front month, in-the-money options so I can capture the trend in the stock. I do not have to predict the time or price I win if the direction is correct. I also trade options with risk management as a focus, I only risk 1% of my total trading capital per trade even with the added leverage of options. Unlimited upside very limited downside for my account.  The 90% love to play the lottery by buying far out of the money options and trying to pick the price and the time it will be hit, these are not good odds. Not to mention you have to overcome the theta cost in out-of-the money options. Others want to sell options short that they think are too expensive, big risk for a small fee, they generally learn why the options were priced high, something was priced in.
  4. I will short a stock in a death spiral. If a company has made a huge misstep with investors or customers and it falls and continues to make lower lows I will short it. I like to short 52 week lows. I am a believer in “Yes, it can go lower.”
  5. I do not put on big bets in any one trade, my concern is how the next 100 will play out not just one. When I am just too sure that a trade just has to work  I get cautious not aggressive in that trade.
  6. My goal in trading is not to inflate my ego, it is only to make money.
  7. My #1 goal is protecting my capital not making a million dollars.
  8. I trade a planned method instead of asking others for their opinions.
  9. I have completed thousands of hours of study by reviewing historical charts, reading hundreds of trading books, and back testing systems and methods.
  10. I grew my trading position sizes in steps as I developed tolerance for different levels of risk so my emotions and stress levels did not leak into my trading.

If you want to succeed in trading you have to be the oddball trader fading the crowd in the majority of markets the majority of the time. When everyone starts to agree with you that is the time to beware.

When I hear the overwhelming majority saying “It just can’t go any higher.” or “It just can’t go any lower.” that is music to my ears. These statements means there are still plenty of sellers and plenty of buyers to fuel the trend.