The Meat in the Middle

 

Date: 4/22/2022
Author: Chris Hood

 


Be sure to check out new episodes of my video podcast each week, where my ace pupil Brian Jones and I talk the ins and outs of options trading- and give you insights and strategy that you can immediately put to work for you in the markets.


It’s one of the most challenging feats in the market…picking tops and bottoms.

Take a look at any decent stock over the past 10 years.

You’ll see flat areas, wavy chop, and occasionally a huge bull run or bearish dive.

Ask any non-trader what they would have done to make money, and he’d point to the exact beginning of a rising trend.

“I’d buy here for sure.”

Then he’d pick the highest price just before the pullback.

“And this is where I’d sell.”

Buy low and sell high – everyone knows that.

If trading were really that easy, we’d all live like kings. Now, I don’t like gambling unless the odds are heavily stacked in my favor. But I would bet almost anything that guy wouldn’t have done that.

Hindsight makes everyone a genius.

In reality, we can NEVER be sure when a trend will start or end.

Professional traders rely on probabilities. With the appropriate indicators, we can determine with some accuracy which direction a stock might move and approximately how far.

But trying to pick the exact top or bottom of a trend is foolish.

I’ll admit that I try to get in as soon as possible and ride a trade until it seems worn out.

I want to milk my winners for as much profit as possible.

However, I’m conservative when it comes to my entries – I don’t just want all my signals to line up, but I almost always wait for confirmation.

The stock needs to start moving as predicted before I put any sizable position on it.

If there’s anything I like less than losing money, it’s losing lots of money. So I’d rather miss the first part of the trend than take a big hit to my P/L.


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As the trend progresses, I’ll take profits and reset my trades when the signals are strong.

Any sign of weakness, and I’m out.

I don’t need to catch the whole move to make a lot of money, and I don’t try.

Sure, sometimes I actually do get nearly the whole thing. But even with the highly successful trading tools I’ve built and my experience, I consider that complete luck.

I make a substantial living catching only part of the move…and so can you.

A few near blowups from going in too hard too early or watching most of your profits evaporate in a bearish cliff dive make you more careful.

Both have happened to me…more than once.

Trying to catch a bottom for the impending reversal or riding a stock to the moon makes me nervous. So there’s no reason to try that.

I’d rather trade comfortably than risk a heart attack.

There are so many trending stocks at any given time, why not just move on to another trend?

Ultimately how you trade is up to you. However, I can tell you that if you’re trying to catch every trend from start to finish, you’re attempting something that not even the best traders can do.

Good luck.

If you went to a nice steakhouse, you probably wouldn’t order a plate of noses, tails, and hooves.

I wouldn’t.

That’s just disgusting.

I’d get a big juicy ribeye, or maybe a filet.

The best meat is always in the middle.

Cheers,
Chris Hood

 

PS – This idea of tops and bottoms is something that I’ve recently discussed with my student Brian on the latest Hood Talk episode on YouTube. I can only write so much so if you haven’t taken advantage of this free resource you’re missing out. Click here to watch the episode.

 


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