I just got back to dry land from a fantastic Caribbean cruise with family and some of my new friends from last month's Black Diamond conference in San Diego.
The seas were calm for our big trip, but I sure can't say the same for the markets. They were volatile when we shipped out and volatile when we got back.
But that made some of our shipboard talk and training sessions more interesting. We made a stop in Cozumel, for one, and once we'd done enough eating, drinking, and relaxing, we commandeered the ship's conference room for two days - ten whole sessions - of trading, training, and teaching.
I can't talk about everything we did shipboard, but I can say that one of the most important things we talked about was...
... "I don't know."
Here's what I mean.
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These Can Help You Out - or Kill Your Trading
"I don't know" has saved my bacon in quite a few situations - mostly with my wife.
"Hey, have you seen those papers?" - "I don't know!"
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"What happened to the last of the cookies in the cabinet?" - "Beats me!"
"Where do you want to go eat?" - "No idea!"
On the other hand, "I don't know" isn't too helpful at all when the shoe's on the other foot and you're the one asking the question, looking for the cookies! When you've got precious capital at stake in the markets, looking to take a position or make a trade, "I don't know" is a killer.
"Which way's the market gonna go?" - "I don't know."
"How much will that stock drop?" - "I don't know."
It's no good - it just doesn't work. Going into the markets or a specific trade blind like that, with absolutely no idea of what's going to happen, or based on something you read in Barron's or heard about on cable TV, is just about the worst mistake you can make; you're practically guaranteed to lose your shirt.
Even if you do have a decent idea of direction, which isn't too hard to guess (down) at a time like this, there are some other important questions you need to answer before you make your move.
"I don't know" won't work for a single one of these questions:
Why are you making the move?
How much are you comfortable risking?
What's your profit target? Your breakeven?
Are you hedged? How does this one position fit into your overall portfolio?
Profit or loss, what's your plan to shut the trade down?
Don't Walk into a Trade Without Knowing
If you leave any of these questions unanswered, or answered with "I don't know," you risk becoming what I call a "subjective trader," as opposed to an "objective" one. Subjective traders are way more vulnerable to emotional swings and poorly thought-out decisions than objective traders, who've answered all these questions beforehand.
The difference between a subjective and an objective trader is that subjective traders usually have cash leaving their pockets. A DALBAR study a few years back suggested that investors make the wrong decision a whopping 85% of the time - 85%!
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In other words, if you walk into a trade without a plan, without having thought through every detail, you stand an 85% chance of messing up big time.
That's why I trade knowable, repeatable patterns in stocks, according to a really strict set of rules. That's at the heart of the Money Calendar - a system I spent five years and millions of dollars developing.
There, I'm researching low-risk, high-reward potential trades for my subscribers; I'll leave the uncertainty to my wife while she looks high and low for those cookies.
The Money Calendar tracks the absolute top-rated 250 stocks and exchange-traded funds in the entire world - every single move any of them has ever made, up or down, for the past decade.
When I see something interesting or at least potentially profitable, I let the Money Calendar rip. It chews up that ten years' worth of data.
If the system doesn't confirm to me that a pattern has worked out profitably in at least nine of the past ten years, I'll give it a miss.
If the system doesn't show that I've got a better than 90% chance of winning, I give it a miss.
If a move is going to cost me any more than $500 - you guessed it - I won't have anything to do with it.
All this data at my disposal tells me everything I need to know - why to move, when to move, how to move, how much to risk, when to get out - to make "I don't know" a non-issue.
The end result: My subscribers got the chance to close out 28 triple-digit trades in 2018. That doesn't even count the chances at single- and double-digit winners.
Meanwhile, the markets just turned negative for the year.
Will the markets turn around? Well, I don't know.
Does it matter to the Money Calendar? Not at all.
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Each person who follows these steps could be paid a total of $2,353 in only 28 seconds.
You won't need to buy a single share of stock up front to collect this cash. You won't need to spend a nickel on anything.
About the Author
Tom Gentile, options trading specialist for Money Map Press, is widely known as America's No. 1 Pattern Trader thanks to his nearly 30 years of experience spotting lucrative patterns in options trading. Tom has taught over 300,000 traders his option trading secrets in a variety of settings, including seminars and workshops. He's also a bestselling author of eight books and training courses.