Chris note: Last week, we passed on a warning from master trader Jeff Clark about the bull market on Wall Street. In short, Jeff says a bear market is on its way in 2019. And when it hits, it’ll be a doozy.
It pays to listen to Jeff on market calls. As we showed you here, he sent out a similar warning on January 13, 2008… just months ahead of the 2008 meltdown. And Jeff doesn’t just predict crashes… He profits from them.
For instance, he made 10 times his money on the Friday before Black Monday. It took the Dow down 23% in a single day – the largest one-day percentage drop ever.
And on March 2, 2000, he made tens of millions of dollars on a single trade. That was just eight days before the dot-com bubble burst.
But as I (Chris) have been telling you, Jeff is not just a great trader. He’s also a great teacher. And in the essay below, he reveals a trading secret that’s helped him profit almost every year for nearly four decades – even through the market’s darkest days…
Readers of my Delta Report made a lot of money in March…
We closed a call option trade on one of the world’s largest investment managers, Invesco (IVZ).
I recommended my readers buy call options (meaning they’d profit if the price of the underlying stock went up) in February. We closed that trade in March. All told, we made 125% in just over a month.
Not bad.
But after we closed our trade, IVZ continued to climb. The stock picked up another 10% a few weeks later.
I mention this because readers occasionally write in asking, “Why did we close that trade? We could have made even more if we had held on.”
Here’s what I always tell them…
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Imagine you’re a contestant on the game show Let’s Make a Deal.
Monty Hall pulls you out of the audience. He waves $2,000 in your face and says, “This is your money. You can take it and keep it right now, or you can trade it for what’s behind the curtain.”
Of course, you know from a lifetime of watching daytime television that there’s a 50% chance that what’s behind the curtain is an all-expenses-paid trip to Mazatlán – valued at $5,000 – and a 50% chance that it’s something virtually worthless, like a farm animal.
What do you do?
If it’s me… I’m taking the cash.
I’m thinking, “I came here with nothing. There’s a 100% chance I’ll leave here better off if I take the money. There’s only a 50% chance I’ll leave here happy if I take what’s behind the curtain. Either way… my life isn’t going to change dramatically. So I’ll take the $2,000 and be happy no matter what.”
Here’s another line of thought…
“I came here with nothing. The worst case is I’ll leave here with nothing. But there’s a 50% chance to increase the return on my prize by 150%. The odds justify that trade. So I’ll pick what’s behind the curtain.”
Here’s the thing… there’s nothing wrong with either decision. All that matters is how you view the consequences of the trade.
Let me explain…
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I’m going to be happy if I get a $2,000 windfall profit. I might be slightly more ecstatic if I win a trip valued at $5,000. But I’ll feel like an idiot if I give up the $2,000 and go home with a goat.
So I’ll pass on “ecstatic.” I’ll take “happy.”
Not everyone thinks that way – which is why we love watching game shows.
Let’s apply this thought process to the stock market…
Every time I close a trade, in the back of my mind, a little voice asks, “What happens if it moves even higher?”
This is the equivalent of Monty Hall asking if I want to keep the $2,000 or trade it for what’s behind the curtain.
I know for sure that I’m happy if I close the trade right now. I don’t know if I’ll be happier or feel like an idiot later.
So I almost always chose to err on the side of happiness.
Now… if this is your only time on a game show… if it’s your only chance to make a trade in front of Monty Hall, it’s understandable if you choose what’s behind the curtain.
After all, it’s your only shot to maximize your gains.
I get it.
But the stock market isn’t a game show. We have trading opportunities almost every single day. The secret to longevity as a trader is to consistently take the money when it’s flashed in front of you.
You might feel a tinge of disappointment if a trip to Mazatlán is behind the curtain. But you’re still heading home with more money than you had before.
Be happy. At least you’re not going home with a goat.
Regards,
Jeff Clark
Editor, Delta Report
P.S. One of the best things about my Delta Report trading strategy is it allows my subscribers to make money no matter what the market does… a bounce higher, lower, or a move sideways.
And with the crash I see coming later this year, it’s more important than ever to ditch the “buy-and-hold” strategy. To learn how I set my subscribers up for triple-digit profits, and how to protect yourself from the upcoming crash, read on here.