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 away 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 7 key principles 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.
2) Prevent 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 an overtrading habit 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) Tune out the Noise
The bull market from 2009 to 2019 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 can 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 own ideas matter most.
Continued . . .
Deadline to Profit from the End of Earnings Season
Right now is prime time to turn the tables on the computer-driven High-Frequency Traders (HFTs). They’re the ones who often trigger panic selling on good companies – even when they beat earnings. Then they buy at the bottoms and collect big gains as prices return to normal levels.
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4) Let Computers Run the Show
The flash crash many years ago 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.
5) The Only Thing That Matters Is Price
No matter how much I love the stock or how big of an earnings beat they might have had, the only thing that matters is price. If the scenario played out just the way you planned and the stock continues to go down, something is wrong and the position should be cut. Price trumps everything because price 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.
7) Stay Disciplined and Follow Rules
Just like a batter trying to lay off a curveball away, a trader must be disciplined. Having a set of trading rules to follow everyday is paramount and can help with capital preservation, overtrading, and mental capital.
What My Experience Has Taught Me
After all these years, I’ve learned 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. Given that, the most important aspect for survival in trading and investing is discipline and risk management. This can be a difficult skill for both rookies and experienced traders to grasp. However, with enough time and guidance along the way trading can be a profitable hobby or even a career.
Sometimes, up and down price movement is irrational. One of the major causes is what I mentioned in my fourth 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.
The good news is that we can profit from these rebounds too. Today you are invited to look inside my portfolio, Zacks Counterstrike.
It’s 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.
Today, as earnings season ends and many stocks with earnings beats have been pushed down, there’s an exceptional number of profit opportunities for nimble traders.
In fact, I’ve lined up 2 new stocks to buy Monday.
Counterstrike looks to generate quick and consistent double-digit gains. In fact, we've recently closed gains such as +58.1%, +32.4%, +26.6%, +33.6%, and even one for +28.7% in just 7 days.
Check out this portfolio today and you may also download our just-released Special Report, 7 Best Stocks for the Next 30 Days. Our experts comb through 220 Zacks Rank #1 Strong Buys to pinpoint 7 that are primed to break out the soonest.
Important: To maximize the profit potential of our recommendations, we must limit the number of members who have access to the Counterstrike portfolio. This opportunity ends at midnight Sunday, December 8.
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Wishing you great financial success,
Jeremy Mullin has been a professional trader for more than 14 years with specific expertise in profiting from patterns set by High-Frequency Traders. He is the editor of Zacks Counterstrike.