Chris’ note: This year at the Cut, I’ve been on a mission to bring you strategies you can use to make money even with markets in turmoil. And today, I’m keeping the spotlight on trading legend Larry Benedict.
Larry got his start as a trader 35 years ago the on the floor of the Chicago Board Options Exchange. And after earning his stripes there, he went on to notch an extraordinary 20-year winning streak.
Tonight at 8 p.m. ET, Larry is lifting the lid on an upcoming window of opportunity in the markets where the profit potential for trading will skyrocket. This event is free to attend. So make sure you’re signed up for that here.
Then read on below for my Q&A with Larry. He talks about how he was able to go two decades without a losing year as a trader. And he shows why the bear market on Wall Street isn’t over yet.
Chris Lowe: I want to get your view on where we are right now in the market cycle. First, I want to talk about your legendary track record.
From 1990 to 2010, you didn’t have a single losing year as a trader. It earned you a place in the classic book on the world’s greatest hedge fund managers, Hedge Fund Market Wizards. Talk to me about how you pulled off that winning streak.
Larry: I’ve managed hundreds of traders in my career. I always asked them the same question: What makes a great trader?
The answer is discipline.
You shouldn’t take on much risk until you’ve had a string of smaller wins. When you do that, you build a pile of capital you can speculate with.
If I don’t have enough base of capital, I don’t take on high-risk trades. I target 5%… 10%… 25% returns. I grab these smaller wins when I can. Same goes if I’m not trading well, for whatever reason. I cut risk as much as possible.
You never go broke taking a profit. That’s why I say you should always look to put a “P” on the page. Once you’ve built a strong foundation of capital, you’ve earned the ability to take on more risk.
I made big mistakes early in my career. They cost me all my money on several occasions. One silly mistake I made was putting too much capital to single bets.
Here’s what I’d tell your readers who are thinking of taking up trading…
You should always stick with an amount you feel comfortable losing. So you should feel comfortable potentially losing 100% of the money you risk on each trade.
Chris: That’s not how most people approach trading. They want to knock the lights out on every trade.
Larry: I’ve known a number of traders with that mindset who ended up losing their homes or committing suicide. They had a gambler’s – not a trader’s – mentality. When they were losing, they were always looking for that one trade that would make it all back.
That’s a terrible way to trade. Instead, I tell folks to start out as a small trader… then become an experienced trader who makes bigger bets. The common mistake new traders make is thinking there’s a shortcut to success. They get frustrated. They quit because they haven’t succeeded overnight.
Chris: What can readers do to boost their odds of success?
Larry: Stay disciplined. Earn your risk. Build a cash pile with smaller, lower-risk trades. Then swing for the fences only when you can afford to take a loss if you’re wrong.
Also, I encourage folks to find a mentor. Someone who’s been at this a long time and can teach you the fundamentals of trading. That will be a huge help. Because you can learn from the mistakes your mentor made instead of having to make them yourself.
Chris: Now that we’ve covered the importance of risk management, let’s move on to where we are now in the cycle.
Larry: Stocks rallied from mid-June to the end of August after Fed chief Jerome Powell’s hawkish speech at the Jackson Hole conference.
Without getting lost in the weeds, higher rates are bad news for economic growth and stock market valuations. And that June-to-August rally was driven by the narrative that inflation was slowing… so the Fed would back off on its promise to keep jacking up rates.
As more investors bought into the story, the S&P 500 rallied as much as 17%.
Then Powell made it clear to investors he wasn’t backing down on interest rates. And the Fed wasn’t pivoting. So stocks started to tank again.
As you can see, since Powell’s speech on August 26, the S&P 500 has fallen 6%.
Chris: So what’s the new narrative?
Larry: There’s one clear truth driving this market. With inflation the highest it’s been in about 40 years… the Fed will continue to raise interest rates. This will tighten the screws on both the consumer and the economy.
The Fed plans to raise rates by another three quarters of a percentage point this month. So the next narrative will likely be all doom and gloom.
But we know that markets always overshoot.
Investors who placed bearish bets on stocks in June and July had to bail out of their positions when the market bounced. And folks who were making bullish bets on the Fed pivot narrative got hosed when that turned out to be untrue.
Our job as traders is to avoid buying into narratives. Instead, we want to look for points when the dominant narrative starts to change. Then we’ll be ready to pounce when stocks respond to these shifts.
That’s how you make money as a trader. You look out for these inflection points. You watch for shifts in the market narrative… And you profit from the big moves in stocks that follow.
Chris: You’re going on air tonight with details of another big move you see coming in stocks. Can you tell me a bit about that?
Larry: When we’re talking about whether rates will rise or fall – and whether stocks will rise and fall as a result – I’m making an educated guess. It’s based on my 35 years trading markets on a daily basis. So I’m confident I’m right. But I’m not 100% sure.
The event I’ll be discussing tonight is different. It’s guaranteed to happen.
Every year, there are four specific, completely predictable windows where the profit potential for trading skyrockets.
It has nothing to do with earnings reports… or a release of economic data… or anything like that. It’s much more advanced. Something the elite hedge funds of the world use to bag outsized trading returns.
This ignites a flurry of trading as the world’s hedge fund traders ramp up their activity. The result? A large spike in volatility across all asset classes. And where there’s volatility, there’s big trading opportunity.
You can find out all about it tonight at 8 p.m. ET. I’ll show folks how by trading a single ticker symbol, you have the chance to get in the black for the year – in just one trade.
So if you haven’t already, be sure to sign up here. Larry is a living legend. You won’t want to miss it.