Being a Contrarian Is the Secret to Finding the Most Profitable Trades
Maria’s Note: Maria Bonaventura here, managing editor of the Diary. Regular readers know Bill sees storm clouds forming over the markets. But that doesn’t mean there are no opportunities to profit. And how to spot those opportunities is our focus today…
We’re handing the reins to colleague Jeff Clark, one of the best traders we know. Even in 2008 – during the darkest days of the global financial crisis – Jeff booked an annual gain of more than 1,000%. And his subscribers had the chance to book 100%+ gains 10 different times. It’s no wonder they call him a “master trader”…
Below, Jeff lets you in on the insight that helps him spot winning trades consistently – no matter how bad things get in the markets…
Most folks believe in their bones that trading is risky. And if you don’t know what you’re doing, it is.
Novice traders often don’t take the time to learn the ropes. They jump right in thinking, “I got this.”
They gamble, blow up their accounts, then walk away penniless and swearing off trading forever.
I know… because it almost happened to me.
I was 19 when I made my first trade.
I had a gut feeling the stock market was going higher. So I bought four S&P 100 call options at $1.50 – a total investment of $600. (A call option is a bet that a stock will go higher. If it does, you make money.)
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 tech giant IBM. I bought 10 $1 calls for $1,000. This time, it took a couple of days to double my money.
Next, I bought put options on a computer company called Digital Equipment Corporation. (Puts are the opposite of calls. You’re betting that a stock will go lower. If it falls, you make money.)
They nearly tripled in value 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.
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 market has a habit of humbling folks who believe they’ve figured it all out.
For me, the humbling started right away.
At first, my trades started moving just a little against me. It was nothing to worry about, I thought. One good day would put everything back in the profit column.
But then, one by one, each trade blew up on me. It was too painful to watch. I kept the TV off… and I avoided reading the newspaper… for fear I’d see something bad about the stock market and my positions.
When I finally plucked up the courage to call my broker, he told me ALL the gains I had built up over the previous six weeks were gone.
“Just sell everything,” I said.
That was an expensive lesson. But it’s one every trader learns at some point. I was just lucky it happened to me early in my career.
I now use the options market to reduce, not increase, my risk.
But if there’s one thing I’ve learned after 36 years of trading, it’s this… The most unpopular trades are the most likely to be the most profitable.
Don’t ask me to explain it. I can’t.
When I was young, I was attracted to high-risk trades. But these days, I look for lower-risk trades. And lower-risk trades, by nature, tend to be the out-of-favor ones.
Let me show you what I mean…
In October 2017, I started recommending trades in the retail sector. And even though we’d had success trading retail stocks, my subscribers were ticked off.
For example, I recommended a trade on big-box retailer Macy’s (M).
To me, it seemed an easy bet. At the time, Macy’s was trading for seven times earnings. And it paid a 7% dividend. Talk about out of favor.
Besides, I had recommended trades on Macy’s three times already that year. Those trades returned 15.3% in 12 days… 12.9% in 45 days… and 28.3% in 27 days.
Those are outsized returns on a stock that was out of favor and had been falling in price all year. So I figured my subscribers would willingly jump at the chance for another trade on Macy’s when I recommended it in early October that year.
You wouldn’t believe the vitriolic emails I received after that recommendation. Folks were upset because the retail sector at the time was deeply out of favor.
And that’s when I knew for sure we had a winning trade…
When even the folks who know I’m a contrarian trader HATE a trade I’m recommending, I know I’m onto something.
So after recommending the Macy’s trade – which generated better than a 13% gain in 36 days – I got more aggressive in the retail sector.
I told subscribers to place a trade on Bed Bath & Beyond (BBBY). And that trade produced a 117% gain in just two weeks.
But you wouldn’t believe the heat I took on that recommendation.
Folks thought I was nuts. Some people canceled their subscriptions because of it. The feedback I got… well… let’s just say it was less than flattering.
But the lesson holds: If I know nobody wants to buy “this” or “that” sector, I know it’s going to be a winning trade.
I just held a special training event about this for folks who wanted to learn more.
You see, over the past 18 months, I’ve developed a new contrarian way of trading a small group of fast-moving stocks.
And the results have been impressive.
It’s spotted stocks that went on to soar as high as 60%… 90%… 236%… 308%… even 600% – all over a short timeframe.
And this new strategy doesn’t even use options.
It’s a whole new way to trade without worrying about things like expiration dates, strike prices, premiums… or anything like that.
If you weren’t able to attend, don’t worry. It’s not too late to find out how to start using my new strategy, the “S-Force Method.”
Best regards and good trading,
One of the worst things an analyst can do is make a prediction that includes both a price and a date. Odds are you’ll end up with egg on your face.
But one thing we can do is look at history. Today’s gold bull market won’t be identical to others in the past—but history does provide clues about how high the price might go based on prior trends.
By my calculations, there have been five gold bull markets since it was legal to own again in 1975. Here are the percentage gains of each, plus how long they lasted.
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