If there’s one lesson that stands out among all those I’ve learned in my 20 years of trading, it’s that even the best research, resources and skills can’t guarantee success.
When I was coming up as a pit trader, I was fortunate enough to work alongside and learn from some of the best traders that have ever played the market. Many generously revealed their favorite metrics and secret tips for finding market trends and picking the best stocks.
But the thing we never talked about was how often or how badly they lost on trades. Unbeknownst to me, this was a critical part of the equation, and one that most market gurus never address.
I remember feeling inadequate because, as hard as I tried, I still couldn’t pick winners 100% of the time. It wasn’t until I became an options market maker that I learned how to add real odds to my trading.
As a market marker, I was required to trade hundreds of contracts on a daily basis. For every trade I took, I was trying desperately to time the market so I could gain a sliver of an advantage. One of my competitors, a trader named Brett, noticed all the effort I was putting into my trades and complimented my work.
Then, he told me I was doing it all wrong.
That day, after the market closed, Brett took me out for a beer and schooled me on how the big money was made on the floor — through trading spreads. It was the only real way to give yourself an edge. I continued to study under Brett for months and we eventually became friends.
This was the secret that would change my life, and while it may sound a bit corny, it could change yours as well. Out of all the trading strategies, it’s my favorite. I’ve used it for 20 years now to make millions of dollars and help others do the same.
The Power of Simple Spreads
Floor traders buy and sell shares and options in the blink of an eye. At first glance, it may seem like they are going long, short and neutral in a mere five minutes, but there is something else going on.
The only way you can trade constantly is to “spread off” risk. In other words, you have to sell something against what you are buying and vice versa. The goal is to increase your odds and capture an edge.
The beauty of spreads is that they allow you to make money even when the underlying stock moves against you, which can improve the likelihood of success to as high as 90% per trade with even the simplest strategy.
At the same time, spreads let you control the amount of money you’re willing to lose, which helps reduce risk. And, like options, we can use this strategy in any market environment — bullish or bearish.
Over the years, I began to focus my attention solely on trading spreads, which gave me an edge in the market that I couldn’t get anywhere else.
Stubborn stock traders don’t get what they are up against…
Every time you buy shares of common stock, you have about a 50/50 shot at making money. Let’s say you buy 100 shares of a stock, for example. You either make $100 for every dollar it moves higher or you lose $100 for every $1 it drops.
If the “crowd” is having a bad day, week or month, it might decide to sell shares of the company you spent so much time researching. This means you could lose big money even though all your research pointed to the stock being a great value. By purchasing shares of stock alone, you are subject to deal with the losses in full.
Worse still is when investors become skittish and markets trade in a volatile sideways pattern for months or years. This was the case for the latter half of 2015 and has rendered many investors’ tactics all but useless.
The reality is that these situations occur all the time. Even the most experienced traders have found themselves frustrated as their portfolio values jump up and down. Over time, frustration builds and some end up exiting their positions only to have those stocks finally move in the anticipated direction after the fact.
But by using spreads to trade those stocks, we can make money whether they go up, sideways or even down.
Instead of a 50/50 shot at winning, this strategy increases your odds to 70%, 80%, even 90% per trade. Even if the stock you select goes down 5%, this strategy could generate a 30% return!
Spreads also reduce volatility to between 20% and 50% of the equivalent regular stock position. This means big, volatile moves in the stocks you trade won’t have anywhere near the effect on your portfolio value.
How to Get Started Trading Spreads
In coming weeks, I will be delving into the specific spread strategies I use — namely bull call spreads and bear put spreads — and teaching you the ins and outs so they can potentially transform the way you trade like they did for me.
But before I sign off, I’d like to invite you learn about a bold new venture called The Insider’s Club, which we envision will generate $30 million in new wealth to participants in 2016 alone.
Our mission is simple: Execute spread trades to help you make 15% to 50% profits in a matter of weeks.
Each week, I will email you all the details on my latest trade — the stock, the specific options with instructions on exactly how to execute the trade, how big of a gain it could deliver and how far the stock can move against us and still be a winner.
Each trade only takes about 10 minutes to enter. And I’ll show you how to automate the exit so we get out as soon as our target is hit.
So if you have a few minutes a week and can follow simple, step-by-step instructions, you can join The Insider’s Club. To learn more about it, follow this link.