It’s ranting time!
There’s a certain blogger out there who’s only purpose for posting (seemingly) is to sell his trading guide, or whatever he calls it. I’m not even sure why I bother to look at his posts. It must be to occassionally get me pissed me off at his hubris and ignorance enough to turn his foolish blathering into an educational post here.
The latest entry (I’m not going to do him the favor of linking to it and helping his page rank) is full of nonsense like this bit here:
There are certain types of trading instruments that I feel should not be peddled. One is the futures market. I’ve never traded the futures but this is a highly leveraged form of trading and it’s just stupid because 99% of all traders who delve into this arena will fail.
There is no market in which 99% fail, so right there he’s killed his credibility with anyone who knows anything – if he hadn’t already done so by saying he’s never traded futures. Yes, the failure rate is high. But it’s also high for his preferred market, which is individual stocks (and it a whole lot of other activities one could get started in).
Read this and remember it well:
Leverage is not the reason people fail in trading. It just punishes more severely those who fail to manage risk.
After relating the story of a trader who ran a small amount up to a large one and right back down, this blogger even makes my point:
It was lack of risk management and money management that made him $4 million very quickly and also the lack of risk management and money management that caused the demise of his account.
That’s the brightest point he made in his whole post bashing all but his favored market.
After he got done with futures he trashed penny stocks and options (for some reason he starts calling people involved in these ”mouth breathers”), claiming he particularly hates the latter because buying them is a big scam. Here’s why:
In order to win, you have to get EVERYTHING right – the timing, the magnitude and the direction. The time decay is always eating at your money every single day. Similar to penny stocks, you cannot put too much of your money into one trade or you risk immediate ruin. Putting 1-2% into each options trade means you will need 50-100 great trades (of 100% gain each trade) to double your initial principle. That’s almost an impossible task!
I’m not going to deny that if you want to make directional plays in options that timing is a critical factor. I would contend, though, that magnitude and direction are something which any straight out stock trader has to get right as well. And it’s absolutely true that you cannot put too much money in any one option, just like you can’t put too much in any one stock. We just had the risk management discussion.
As for needing tons of winners to double your portfolio, apparently someone doesn’t really grasp the upside potential for options. It’s nothing for one to double. If you catch the right moves you could be looking at 5- or 10-baggers, and up. Oh, and not everyone is necessarily out to double their money each year.
So what does this braggart trade?
The best way still is trading mid to large cap stocks. They are alot safer than those trading instruments mentioned above. And you can still make huge gains, like I did last year being mostly on the long side in a terrible bear market.
Anyone who’s followed my writings for any time now will no doubt anticipate what I’m about to say.
Safety is not about what you trade. It’s about how you trade.
and…
There is no best market - only the best market for you.
I don’t know this guy’s methodology, and don’t really care. If it works for him, that’s fine. It might work for others as well. I’m going to guess that some options folks would have ideas for ways they could use take that approach and apply it successfully in that market. I know that for the way I trade stocks, options work very well for providing great risk management and expanding opportunities. Again, that may or may not work for others. I do not, however, make any suggestion that my way of doing things is the only or best way. There are a lot of perfectly workable trading methods, and money can be made in any market, though some are clearly better for some traders than for others for any number of reasons.
I hate it when these types of people claim that their market is the only one that makes sense to trade. It makes me want to slap someone upside the head. I don’t care a whit how good their performance is.
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About the Author
John Forman, author of this blog, has traded for more than 20 years, is a professional market analyst, and authored The Essentials of Trading. He is an active participant in trading forums, consults for trading related businesses, as published literally dozens of trading articles, and has been quoted in a number of books and in the media.
** See John’s full bio.
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