I have spent the last 14 years as a professional trader trading stocks, options and futures. Gladly, there were many times during my career when I felt on top of the world. Unfortunately, there were also a few occasions I thought it was all over and was close to throwing in the towel. I’d like to think I have seen it all at this point, but I’m still learning all the time. What I have learned along the way and perhaps the most important takeaway to date is this:
Traders who are successful learn from their experiences. BOTH good and bad.
Today I wanted to share some of what I have learned from trading bull markets, bear markets, elections, flash crashes and more. While I could go on for a fairly long time, I have boiled down all my trading experience to the 6 key lessons below. Enjoy!
1) Adjust to Your Environment
The financial crisis was a terrible time for many. But due to the volatility, it was a great time for traders that knew how to stay nimble. The most important lesson I learned that year is to always adjust to the trading environment that is thrown at you. When the S&P 500 is moving 50 handles a day, there is no reason to push a trade; quickly letting winners add up is the better play. When the market slows down, it is paramount for a trader to also slow himself down in order to not overtrade.
The recent selloff has bought back volatility and larger intraday moves in the market. Traders that did well over the last few years are likely struggling at the moment. Those that traded during the financial crisis have seen this before and adjusted, allowing them to profit off the volatility.
2) Beware of Overtrading
Patience and waiting for setups will help a trader become more profitable over time. When a trader isn't patient, it can lead to bad prices and overtrading trying to manage a bad position. Managing overtrading is a key to success, and for trade addicts like me, having difficulty with this is common. However, if it can be recognized it can be controlled.
3) Computers Run the Show
The flash crash taught me that I need to be aware of computer robot traders. It was pretty scary when I saw all the bids and offers on my screen magically disappear while the market went into free fall. Explanations for what happened that day varies, but what I saw is that HFT, algorithm, and robot traders no longer wanted to take risk and they simply unplugged their machines. The rest of us still trading were left holding the bag as there was no liquidity in the market whatsoever. I was lucky and didn't panic or else I would have had a multi six figure losing day and my career could have been over. What I saw that day, as quotes disappeared from my screen, would forever change how I looked at trading. Now that the advancement of high frequency trading and algorithms has changed trading, it's important for the modern trader to understand how they work and operate.
More . . .
Is the Market Rigged?
How often have you owned a stock that gets pummeled with no logical explanation? This is often caused by computer-driven High-Frequency Traders (HFTs). They fire off massive amounts of short trades to drive stock prices down, then profit from the rebound. Their gains come at the expense of human investors.
The good news is that Zacks has mounted a Counterstrike to catch the best of these “manipulated price drops” as they rebound. For example, we recently closed gains of +30.02%, +23.58% and +14.18% in as little as 2 days.
Access to these trades must be limited. It closes to new investors Sunday, December 23.
See Counterstrike Stocks Now >>
4) Tune out the Noise
The bull market from 2009 to 2018 has taught me to ignore the noise and trust my instincts. Listening to the talking heads on CNBC can cause a person to get emotional and tend to do more harm than good to a portfolio. Today's 24 hour a day media thrives on extreme news, and while stocks might react, it doesn't mean a single trade should be executed. Once a trader has been doing this for over ten years, he knows his own instinct and his ideas matter most.
5) The Only Thing That Matters is Price
No matter how much I love the stock or how big of an earnings beat it might have had, the only thing that matters is price action. If the scenario played out just the way you planned and the stock goes down instead of up, something is wrong and the position should be cut. Price trumps everything because price is what pays.
6) Fear Means Something
Over the last ten years, I have become a student of the fear gauge commonly known as the VIX. The VIX measures the market's expectation of volatility over the next 30 days and can give traders a clue about what to expect on any given day. For me having one eye on the VIX at all times gives me confidence in the direction of markets over the short term.
What My Experience Has Taught Me
After all these years, my experience has taught me to accept that the market is a living, breathing organism. It is not against you; it is not out to get you. It just exists as a marketplace where prices go up and down based on a wide variety of factors.
Some of these up and down moves are irrational. One of the major causes is what I mentioned in my third lesson above: computers run the show. These High-Frequency Traders can short millions of shares in tiny fractions of a second, driving stock prices lower and profiting on the way down. Then they buy the stocks at the bottom and profit even more as price rebounds to its fair market value.
My portfolio, Zacks Counterstrike is designed to spot these Manipulated Price Drops. We take advantage by buying the best of these unfairly beaten-down stocks. Then when price moves our way, we lock in gains and look for the next opportunity.
The market volatility we’re seeing right now can create a tremendous amount of profit opportunities for nimble traders. Counterstrike looks to generate quick and consistent double-digit gains in the midst of current conditions. In fact, we've recently closed gains of +30.02%, +23.58% and +14.18% in as little as 2 days.
We're now holding a handful of stocks that are spring-coiled and ready to bounce higher.
Check out this portfolio today and you may also download our bonus Special Report, 5 Stocks Set to Double. It spotlights 5 companies Zacks experts predict could grow +100% or more over the next year.
Important: To maximize the profit potential of our recommendations, we must limit the number of members who have access to the Counterstrike portfolio and 5 Stocks Set to Double. This opportunity ends at midnight Sunday, December 23.
See Counterstrike and 5 Stocks Set to Double Now >>
Wishing you great financial success,
Jeremy Mullin has been a professional trader for more than 12 years with specific expertise in profiting from patterns set by High-Frequency Traders. He is the editor of Zacks Counterstrike.