Editor’s Note: Most investors fear market volatility. After all, it’s a lot easier to make money when everything is going up!
Trading in volatile markets feels risky but my colleague, Jonathan Rose, knows there are several ways to manage risk so any trader can sleep well at night.
Jonathan has more than 25 years of experience, including years spent as a floor trader on the Chicago Mercantile Exchange, and as the Director of Trading at a multimillion-dollar proprietary trading firm.
He also has trained over 100 traders who went on to become professionals.
What he has to say about the way every investor can manage risk when trading is worth hearing, and that’s why I’m sharing his essay today. Jonathan had a lot to share Wednesday during the Masters in Trading Summit.
During that event, he shared the details behind one of the most consistent and lucrative trading strategies he discovered during his tenure as a professional trader. In fact, over the past three years, 90.3% of the trades Jonathan recommended using this strategy have been profitable.
But Jonathan is not just skilled in trading; he is also a gifted teacher with a talent for simplifying complex trading concepts – including managing risk.
If you missed the live event, it’s not too late to catch up! You can still watch the replay by clicking here. Don’t miss out on learning about his massively profitable trading strategy.
Enjoy your weekend,
Luis Hernandez
Editor in Chief, InvestorPlace
Why We Love ‘Set It and Forget It’ Trades
If you’re like me, you’re old enough to remember the great product pitchman Ron Popeil.
He was the inventor and marketing genius who founded Ronco and who appeared in dozens of infomercials in the 1980s.
Ronco and its list of “-O-Matic” products (such as the Veg-o-Matic and Chop-o-Matic) become a huge part of American popular culture.
Popeil appeared in his own informercials and is widely credited with coining the phrase, “But wait! There’s more” that you hear so often in product pitches.
But he also coined the phrase, “Set it and forget it” in connection with his Showtime Rotisserie oven. The idea was that you could simply put the chicken in the roaster, walk away and have it come out perfect every time.
Why am I talking about the great Ron Popeil? Because his “set it and forget it” strategy also perfectly summarizes one of my favorite ways to trade.
I love trading this way, and encourage others to trade this way when appropriate, because it removes a dangerously weak part of the trade chain – irrational human emotions.
Too often the reason trades go south is because people let their emotions get involved. The emotional human trying to decide if he/she should follow the plan.
That part of the trade chain for most people needs to be fixed.
The human brain is a marvelous tool. It can create wonderful art and music. But it can be a lousy tool for investing.
It’s the weak link and a chain is only as strong as its weakest link.
We fix this weak link by cutting it out and replacing it with rules and automatic execution.
Set It and Forget It (SIFI) Trades
This is all much easier to see using an example.
The idea is very simple. You buy an out-of-the-money call or put.
For example, if a stock is trading at $10, you buy the calls at $12 (let’s say the premium is $0.50). The cost to place this trade is only $50 per contract.
That’s it. You can never lose more.
You can think of it as being “long” 100 shares of the stock… 100 call options.
You can never lose more than the $50 you risk per contract.
You can walk away and go about your daily life. And then check in later to see how the trade did. That’s why it is a SIFI trade.
There are tons of trades with this kind of SIFI risk setup.
Those are the kind of trades I like to get into.
The risk is defined, and the upside is clear.
A solid fundamental understanding of the market, the strategic use of options, and disciplined risk management form the cornerstone of successful trading.
The Bottom Line
Using this SIFI method is just one of the ways that I trade without the fear that trips up many traders. And it’s what I shared with an exclusive group of likeminded folks like you at my Masters in Trading Summit last Wednesday.
However, it’s not too late! You can catch a replay of this exclusive event here. In the video, I introduce a new market indicator that I believe can help transform how you approach your trading.
It’s critical for every trader to always be learning and keep an open mind to evolving strategies. This type of mindset gives us a different perspective on the markets, which helps ensure we’re in position to capitalize on market opportunities as they arise.
And as I like to say, the creative trader always wins.
Now, maybe you’re a product and marketing genius and can make money selling the “Mr. Microphone” or the “Ronco Pocket Fisherman.”
But for the rest of us, trading options using this SIFI method allows us to make profits trading options with a well-known level of risk.
Trade smart!
Regards,
Jonathan Rose
Editor, Masters in Trading
