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A Flash of Light

It has often been said that trading is not rocket science. I believe that. You don't need to be as brilliant as a rocket scientist to trade the markets profitably. I know I'm not that bright. That said, there are moments when a trader has a brilliant insight and takes home huge profits because of it. (I don't know any rocket scientists, but I'll bet that a rocket scientist isn't brilliant every waking moment, and occasionally, must also rely on a moment of brilliance to get the job done.) All traders have their moments when they have a brilliant insight and profit from it.

When I talk to winning traders, I enjoy asking them to describe their biggest winning trades. Usually a combination of luck and brilliant insight results in the biggest wins. For example, in an often told story, a trader just happened to own stock in a company that was talked up by a media analyst. The price jumped on the news, and the trader sold into strength for a huge gain. In other stories, traders make a good guess that a product or service is bound to be in high demand in the future and that eventually the stock price is going to reflect the demand. For example, if you perceived early that all the kids on the block were going to successfully convince their parents to buy them an iPod, you would have made a killing buying Apple stock a few years ago. Other traders capitalize on unexpected world events, like droughts, floods, earthquakes, or hurricanes.

So what's the lesson? Sometimes you will have a brilliant insight and make a killing, but other times, you will not. Should you wait around for a brilliant insight and stand aside at other times? No. If you take no action, you will stagnate, and then, when a "once-in-a-lifetime" trade happens, you won't have the skills to execute the trade and capitalize on the opportunity. Instead, you should trade day after day, and always accept what the markets have to offer. Don't demand that the markets give you rare trading opportunities every day. There will be times when you will come across a rare market event, but the rest of the time, you have to settle for finding profitable run-of-the-mill trades. It is vital that you scour the markets for high probability setups and trade them, rather than only look for potentially big wins. The typical offerings may not allow you to achieve 50% of your earnings on a single trade, but they will allow you to make profits across a series of trades.

As much as you want to find that big trade that you can talk about for the rest of your life, realize that it may not be the big, thrilling trades that matter, but the smaller trades you make every day to become a winning trader.

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Monday, 23 September 2019

Derivative transactions, including futures, are complex and carry a high degree of risk. They are intended for sophisticated investors and are not suitable for everyone. There are numerous other factors related to the markets in general or to the implementation of any specific trading program which cannot be fully accounted for in the preparation of hypothetical performance results, and all of which can adversely affect actual trading results. For more information, see the Risk Disclosure Statement for Futures and Options.