Justin’s note: Regular readers know I read master trader Jeff Clark’s Market Minute every morning. It’s a quick way to see everything I need to know about the coming day’s market action… and get expert trading advice—for free.
Today, I’m sharing one of my favorite essays from him. If you’re interested in becoming a better trader, the following essay is required reading. In it, Jeff shares one of the most important lessons of his career…
By Jeff Clark, editor, Market Minute
I was only 19 years old when I made my first options trade.
I had a gut feeling the market was going to go higher… so I bought four S&P 100 call options at $1.50—a total investment of $600. A few hours later, the options were trading at $4.50. I sold and took the $1,200 profit—a 200% gain. And I was hooked on options forever.
My next trade was in IBM. I bought 10 calls for $1. This time, it took a couple days to double my money. Next, I bought Digital Equipment put options… which nearly tripled in just a few days.
I made 17 trades during my first six weeks as a trader. Every single one was a winner.
Going 17 for 17 was a remarkable feat for a rookie trader—especially since I wasn’t using any sort of fundamental or technical analysis. I was just going with my gut.
But I was careful not to put more than $1,000 or $2,000 into any single trade. And I still managed to turn my $5,000 brokerage account into $50,000 in just six weeks…
And then I decided it was time to get serious. No more tiny trades. I was too good for the small stuff. For whatever reason, I had figured out a way to beat the market.
Heck, I had just rattled off 17 straight triple-digit winners. So I decided to take the $50,000 in my account, add to it my $25,000 in savings, and put it into a handful of options trades.
You can probably guess what happened next.
The stock market has a habit of humbling folks who think they’ve figured it out. For me, the humbling started right away.
At first, the positions started slightly moving against me. It was nothing to be concerned about. One good day would put everything back in the profit column.
But then, one by one, each position blew up on me. It was too painful to watch. I kept the television off and avoided reading the newspaper for fear I’d see something bad about the stock market and my positions.
When I finally got up enough courage to call the branch manager and check on the status of my account, I learned all the gains I had built up over the previous six weeks were gone.
“Just sell everything,” I said.
That was an expensive lesson to learn. But it’s one every options trader learns at some point. I was just fortunate it happened to me early in my career.
You see, that experience changed how I looked at trading. Instead of using options as vehicles for speculation—a way to juice my returns and get more bang for my buck—I started using them the way they were intended to be used: as a way to reduce risk.
Today, I still do my fair share of speculating. But I’m not focused on how much money I can make. I’m focused on how little I can lose.
That’s a huge difference. It has allowed me to trade options successfully for nearly three decades. And it allowed me to retire at 42.
Best regards and good trading,
Editor, Market Minute
P.S. Like any honest trader will admit, this is far from the only horror story that has occurred over my career. But my favorite story, which started out just as scary… ended quite differently.
You see, I’d learned from my previous mistakes… and turned what was almost a devastating loss into one of the biggest wins of my career. Click here to hear all about it.
Today, another reader writes in about Doug Casey’s recent piece on the Alex Jones ban…
Thanks Doug, for your comments about Facebook, Alex Jones and free speech. Makes me see this in a different light.
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Recently, President Trump signed an executive order that mandates the Interior Department begin mapping the country to locate America’s “Brandt Oil” reserves.
“Brandt Oil” is a new, clean super fuel that’s so powerful, less than two gallons’ worth contains enough raw energy to power your house for nine years. So it’s no surprise “Brandt Oil” applications are going mainstream.