Posted February 10, 2021
By Scott Stewart
Part 4: Choosing The Right Trades
Welcome to the Rude Awakening for February 10, 2021
Were back today with Part 4 of your asymmetric trading series.
We started day one with talking about the problem, the problem being that we don't have an edge, we don't have an advantage when we simply buy stocks. It is a probability of 50% that we'll be successful in our assumptions.
Then, we talked about the solution. That's building an asymmetric trade where we have a one to three ratio of risk to reward. So, for every dollar we risk, we have $3 of potential profit.
Yesterday, we got into bracket orders, and how to actually structure that type of a setup.
Today, youll learn everything you need to know about choosing the right trades.
After this ten-part series, you will have the edge you need to feel confident in all your trades, no matter what the overall market is doing.
Continue reading for a brief look at todays markets.
Hint: the pendulum swung back.
Stocks erase gains after reaching record highs
The markets are showing weakness after hitting fresh all time highs.
We cant be shocked.
At this point, we need to be used to these swings.
Yahoo Finance reports
Stocks turned lower Wednesday morning, and the S&P 500 tracked toward a second day of declines.
Each of the three major indexes declined intraday after rising to reach record highs shortly after market open. However, all three major indexes have performed strongly for February to date, as has the small-cap Russell 2000, which reached its own record high before turning slightly lower.
Companies that reported quarterly results in the last day largely topped expectations, adding to the pile of estimates-topping reports for last quarter.
Lyfts stock (LYFT) surged more than 8% after the company said it could be profitable as soon as the third quarter this year, or a full quarter ahead of earlier estimates, thanks to rigorous cost-cutting measures. Shares of Twitter (TWTR) jumped 9% after the companys sales grew more than expected and its profit beat estimates, though it warned that user growth will likely slow in 2021 after a pandemic-era boom.
So far, companies comprising more than three-quarters of the S&P 500s market capitalization have reported fourth-quarter results. In aggregate, these results have topped expectations by nearly 17%, and 80% of companies beat their own projections, according to an analysis by Credit Suisses Jonathan Golub.
But even amid strong earnings and supportive monetary and fiscal policy, some strategists have begun to debate whether the recent leg higher in markets can be sustained in the very near-term as sentiment starts to get frothy.
Weve seen a very strong phase of what Id call fast markets: A strong rally the last six months in risk assets across the board, Joseph Little, HSBC Global Asset Management global chief strategist, told Yahoo Finance. And what that means in practical terms for investors is that a lot more is now discounted. And the story around recovery, around faster economic improvements, around the vaccines is now, at this point, well-known to investors and to other market participants. And that poses the question of what could happen to markets next.
These wild swings scare investors.
Thats why we are traders. Ill take quick money using a strategy I can actually control over simple buying and holding any day of the week!
Have a great rest of your trading day.
Well talk tomorrow!
Scott StewartEditor, Rude Awakening