This is too easy.
That’s what I said to myself on more than one occasion late last year.
Making money in the stock market had become America’s new favorite pastime. And anyone trading stocks was reaping big gains, fast.
But the reality is that making profits is rarely that simple. By playing on your greed and fear, the stock market entices you to do the exact wrong thing at the exact wrong time.
So far, 2021 has served up plenty of examples. Renewable energy, special-purpose acquisition companies and expensive growth stocks have all tumbled just when it seemed like they would never stop rising.
But I don’t think investors have gotten the message that 2021 will be different.
According to Bank of America Global Research, the amount of money that’s flowed into stocks globally over the past five months has exceeded the total for the prior 12 years! Investors were clearly expecting more easy gains as we entered the year.
If you’re among those adding funds to your brokerage account, you need a different playbook to make profits this year.
Here is what you need to succeed.
Make a Plan
By the time year two of a new bull market rolls around, the easy money has been made and gains are harder to come by (year one started on March 23, 2020).
The chart below shows the performance of the S&P 500 Index during the first and second year of major bull markets.
At an average of about 17%, the gains in the second year are nearly 60% less than those in the first. It’s not a bad return, but it’s certainly not what investors grew accustomed to in 2020.
That’s because, at one point, 93% of stocks were trading above their 50-day moving average. Almost everything was heading higher!
Last week, that figure stood at just 46%.
However, this remains a terrific environment for picking stocks and cashing in huge gains.
You just need a disciplined strategy to uncover the best opportunities to keep making profits, especially since fewer stocks are participating in the uptrend.
And we’re here to help.
When developing a stock strategy (or adopting one like mine), it must have two critical elements. It must be:
- Repeatable. It delivers profits consistently. It’s a process for uncovering trade ideas that you can run over and over.
- Robust. Don’t “curve fit” your approach to a specific stock or market. Follow a strategy that works across different stocks or sectors, and delivers results even if market conditions change. This last point is key!
Here’s How I Do It
I’ve spent most of my career building trading systems to profit in any type of market … no matter if stocks were rising or falling, and across any sector or geography.
I take the best of what I’ve learned through study and decades of experience with fundamental, technical and quantitative approaches to navigate all types of stock markets.
It’s how subscribers to Flashpoint Fortunes have consistently made money on options trades over the last six months, even as a massive sector rotation was underway. In fact, we’re running 17 for 17 wins as of this morning.
So, if you find this market challenging, it’s time for a new approach that is repeatable and robust just like the one we deploy in Flashpoint Fortunes. Click here to learn more about how we do it.
Research Analyst, The Bauman Letter