James’ note: The Legacy Research inbox was quiet this holiday-shortened week. So, in place of our usual Friday mailbag edition, we’ve got something special for you today…
We don’t normally publish essays from experts outside the Legacy Research fold, but this is an exception… and I’ll tell you why.
I’ve been in the finance/investment business for over 20 years, and I’ve known everyone from runners on the trading floor to billionaire investment bank founders. But I’ve never seen anything like the track record of Larry Benedict, the author of today’s essay…
From 1990 to 2010 – when he was actively running hedge funds – he never had a single losing year. And not only did he manage to turn a profit during the 2007-2008 global financial crisis… 2008 was his fund’s best year. It made $95 million for employees and clients.
I don’t know anyone else who can make a claim like that. So that’s why, when I read the essay below, I knew I had to share it with you and your fellow readers. It’s all about the secret to Larry’s unmatched success…
It’s taken 35 years, but I’ve finally cracked the secret to becoming a world-class, highly profitable trader.
Ready? The secret is… hard work and consistency. Who could’ve seen that coming?
That might sound boring to you. You might think that the world’s best traders owe it all to one big home-run trade, or a fancy algorithm that they invented. But the reality is that success requires dedication.
Everyone has a different approach, but in this essay, I aim to show you exactly what I’ve done for 35 years that made me a success. And it all starts with a breakdown of a typical trading day…
For most folks, the trading day starts when the market’s opening bell rings at 9:30 a.m., New York time…
For me, a typical trading day actually starts the day before… right when the market closes.
Here’s what I mean…
I believe that the only way to get a leg up on the countless other market participants is to be as prepared as possible. So as soon as I hear the closing bell, I’ll look at how the stocks on my watchlist closed, go through charts of trades I’m in or looking to get into, and how the market finished overall.
It depends on how many trades I’m in. But this part of the process takes anywhere from one hour to a few. I spend at least 30 minutes the day before going over what I did right, what I did wrong, and what I might need to improve on for the next trading day.
Then, I’ll leave my office around 5:30 p.m., get home, and wait for the Japanese market opening at 7 p.m. ET. It’s important to pay attention to global markets… Intermarket relationships are huge, because markets can impact other markets drastically.
My trade station
I also always keep an eye on the futures market, which is open from 6 p.m. on Sunday to around 5 p.m. on Friday. But my prep the night before the next trading day is more paying attention to news and market action than anything else. I’ll usually watch the market action, on and off, until I fall asleep.
Sometimes I’ll even trade through the night. But when I don’t, I’ll still put in call levels just in case something big happens. (A call level is basically an alert. It means a firm will call me and wake me up if the market makes any big moves, so I don’t miss it.)
Depending on how things look, I might get up at 2 or 3 a.m. to trade the European markets. I don’t do that often at all. But, if it’s really active and busy, I will.
See, a lot of what I do is trading our market vs. other markets… Like the Nikkei 225 against the German stock index… or even one country’s debt vs. another country’s debt.
Like I said, I don’t do that too often. I try to sleep as much as possible for my health, and to stay sharp during the trading day.
Either way, I usually get up around 6 a.m. and prepare for that day’s U.S. market open. That’s mainly reading through research and news headlines.
Unfortunately, today’s market is a very reactive one. It can and will move off of the slightest bit of positive or negative news. And it doesn’t matter if that news is factual or not.
The trading day itself is just executing on the plans I put together from the previous day – and occasionally overnight. I’ll be honest… it’s a bit of a blur. I’m in and out of at least 50 positions a day.
That might sound like a lot, but I trade differently from a lot of people. I’m looking to take small gains on a large number of positions throughout the day. This is what slowly grows my pile of capital, so that when I see a home run lining up… I can make a big, profitable bet.
Those don’t come around often. Most days I’m just taking those small gains over and over. But when they do come around, I pare down the number of positions I trade each day and focus on the big one.
Then, the preparation continues again after the close of the U.S. trading day. All that’s left is analyzing my current positions, making sure our P&L (profit and loss) from the day before is right, and adjusting where we need to. Then, the cycle repeats…
This habit of constantly consuming information about the markets is part of why I’m successful today. But a big part of that success also relies on my insistence on taking small profits as soon as I see them.
It’s all about having the proper mindset…
I’m not focused on getting the home run. I just want to capture gains when I have them. Home runs aren’t necessary if you’re slowly, consistently letting gains trickle in.
That might not sound as exciting as hitting doubles and triples on every trade you make, but it’s realistic.
Here’s what works for me: Have a number you’re not going to go past on the upside or the downside, and execute – no matter what. Don’t let your emotions interfere with that plan.
With this strategy, you’re slowly pulling in profit after profit. That’s how you size up your pile of capital, eventually take on larger and riskier position sizes, and see exponential growth in your trading account.
And when you start out trading, the gains might not look huge on a percentage basis… But when you have a big enough cash pile, those small percentages can amount to millions of dollars.
It’s all about using the money you have to make more.
By now, you’re probably wondering what kinds of exotic stocks and sectors I like to trade. Well, you might be surprised…
I like to trade the S&P 500. By that, I mean the SPDR S&P 500 ETF (SPY).
That might sound a bit basic, but here’s why…
I like the S&P 500 because it’s pure. By pure, I mean you might be bullish on a single stock, but you may not make money off of it.
The stock might have a seller you don’t know about, or bad news could come out at any point that could rock the company, or a million different things could happen.
But, with the S&P 500, you don’t have to worry about that nonsense. If the market goes up, you can make money trading it. If the market goes lower, you can still make money trading it. It’s more difficult to get pure action in stocks.
Editor, The Opportunistic Trader
P.S. On December 11 at 8 p.m. ET, I’m making one of the biggest bets of my career… and putting my reputation on the line.
I’ve taken the challenge of making $70,000 or more, in just three hours, and donating my entire winnings to a local South Florida charity.
Whether I win or lose, you’ll see the full result. And, even better, I’ll reveal the exact method I use to generate such huge profits in such a short time.
Plus, as an added bonus, anyone that attends will receive a free copy of my “Foolproof 50” – the only 50 stocks you need to trade to generate hundreds of thousands in profits. Secure your copy right here.
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