Taking action is stimulating, even fun. It makes us feel like we’re doing what active investors do.
Plus, there’s a whole lot of action in the market right now. And it may feel tempting to get in on it.
But if there’s anything I’ve learned in all the years I’ve been doing this, it’s that there’s a time and place for taking action. And there’s a different time and place to take no action — to simply sit tight and be patient while whatever’s going on in the market swirls around you.
This advice can take the form of not selling profitable positions too quickly. After all, the trend-follower’s mantra is: “Cut your losses short and let your profits run.” And to “let your profits run” requires a good deal of patience and self-control.
What’s more, sitting patiently also involves the discipline that’s required to not “chase” trades and to not get into trades that are outside the bounds of the strategy you’ve committed to following.
And that latter part applies to what we’re seeing in the market right now.
Don’t Go Chasing Waterfalls
This might sound silly, but the whole time I’ve been watching this crazy GameStop business play out in the market … I’ve had the chorus to TLC’s “Waterfalls” stuck in my head.
“Don’t go chasing waterfalls. Please stick to the rivers and the lakes that you’re used to.”
Even funnier, I Googled the meaning of these lyrics and got: “An expression of how people chase intangible dreams with no thought of the consequences.”
As well as: “Based on people pursuing self-destructive ambitions.”
Fits the GameStop phenomenon pretty well!
Shares of GameStop Corp. (NYSE: GME) have now fallen 80% from their intraday high last Thursday.
Safe to say, anyone who bought the stock a bit late … anyone who got in after seeing the story on the internet or the local news … anyone who chased the trade because they couldn’t stand the thought of missing out … they’ve lost a good chunk of money now.
To be fair, I also acknowledge there were some folks who made a boatload of money on the stock’s run-up. The folks who were in on the gig early enough … those who were on the message boards and in the know ahead of everyone else … if they were smart enough to sell last week.
It’s important to acknowledge the winners in this. Those traders who decided, “that’s my game,” and then played it. Kudos to them.
The lesson here is this…
Play Your Game
Since 2012, when I designed the trading strategy that underpins Home Run Profits, I’ve been playing my game. And I’ve helped my loyal readers play it too.
We only buy things that are in long-term uptrends.
We only buy things that are showing market-beating momentum to a statistically significant degree.
We buy call options that are fairly priced, typically for just a few hundred dollars per contract.
We hold those call options until we can secure a 100% profit on a portion of the trade or until our targeted holding period has passed (within two to three months).
That’s our game.
And we’ve played it consistently for almost a decade now … making hundreds of trades along the way.
I can’t say we’ve capitalized on every hot new trend that’s come and gone over the past 10 years. Though I’ve proven we don’t have to play every hot new thing to make good consistent profits. And avoiding the “hype” plays has helped us sidestep the messy aftermath that often follows when folks become exhausted chasing that particular “waterfall” and come to their senses.
Even in my Green Zone Fortunes service, which I run with my partner and co-editor, Charles Sizemore, and our research analyst, Matt Clark … we do invest in up-and-coming high-growth industries. But we don’t “chase” every latest internet craze.
Last week, in fact, Charles and I helped our readers lock in a 100% profit on a stock recommendation we shared in the December 2020 issue of Green Zone Fortunes.
In that issue, we set a price target of $150 for this stock … and used our analysis to highlight the potential for a large “short-squeeze” rally.
Well, last week, the stock blew through our target, and we instructed our readers to sell half of their position for a 100% profit — aka, a “double.”
If you want to see what that pick was and how you can gain access to our highest-conviction stock recommendations each month, check out my Millionaire Master Class here.
Mind you, we weren’t playing GameStop … nor r/WallStreetBets’ game.
We were playing our game! We used my six-factor Green Zone stock rating model to find a high-conviction stock recommendation … a company that scored high on the six things we consider: momentum, size, volatility, value, quality and growth.
That stock checked all the boxes. And while it didn’t shoot up quite as high as shares of GameStop did, Charles and I were more than happy to play our game … and help our readers lock in a handsome profit in a short amount of time.
So my advice today is simple: Know what your game is … and stick to that. Don’t get suckered into the latest fad.
And if you’d like to learn more about my personal favorite game, the Momentum Principle … you should check out my Millionaire Master Class here, which also gives you access to the once-a-month stock recommendations Charles and I share in Green Zone Fortunes.
To good profits,
Adam O’Dell is the chief investment strategist of Money & Markets and has held the title of Chartered Market Technician for nearly a decade. He is the editor of Green Zone Fortunes, the trend and momentum options-trading powerhouse Home Run Profits and the time-tested switch system 10X Profits.