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That’s just 1 contract.
If we did 10 contracts, you’re talking about $4000 in profits, in 2 weeks – on $10,000 in margin money. Let’s say you went to 50 contracts. Now you’re talking about $20,000 in profit potential, in 2 weeks.
But believe me, you do not want to trade 20 contracts yet. You want to get very good at managing your positions, using 1, 2, or 3 contracts, at the most, for a period of not less than 6 months, so that you are trading with confidence. You know when you put on a position, exactly what’s going to happen, day by day. If you need to adjust, you know exactly what to do. There won’t be any surprises.
You want to be totally rational. You want to be calm. You want to be able to look at your positions and manage the numbers by portfolio. You don’t want to manage your numbers in a scared state, that the market is moving tremendously against you, in some way, and you don’t know what to do. You get frozen, and you lose money.
That’s not what we’re about. We’re about trading with confidence.
As you can see in this position, we could actually stay in this position a little bit longer – maybe a day or two, at the most. That’s all, though. We really want to get out before expiration.
You can see that our profit margin is quite huge. We can go from 127 on the SPY, all the way up to 140, and not really get hurt too badly. Right around 139, we start losing money, and right around 128, we start losing money. We’re right in the sweet spot, and very close to the sweet spot, right now. We’re about 50 cents off from the sweet spot. We are in a really good position. We are at nearly 90% of our profitability for this position.
We’re going to go ahead and take profits today, on this. We have done the same thing with the Diamonds and the IWM position that we had built, when we built our portfolio in the beginning. This is how we’re paring down our positions. We’re going to start entering orders to get out of our positions.
A lot of people ask me, “Do you league out of positions? Do you take one side off, and then take the other side off?” No. As I’ve told a lot of students, we’re not very good at predicting the future. Can anyone predict the future? No. All we can do is manage the problems and challenges that come to us, in the future. We can manage those, but we can’t predict the future.
I know that there are a lot of guys out there who are extremely good at technical analysis. It does help to have a little bit of technical analysis, and if you see our videos on technical analysis and predicting trends, and so forth, we look at channels. I think channels are probably the most useful technical analysis tool out there. We go over the kind of things that you can use, like the VIX. You can use that to predict where prices might be going.
But you’re only dealing in terms of probabilities. You can say, “Well, there’s a 70-80% chance that the market is going to be moving up, after today. There’s a 70% chance that it is moving down, from today.” Technical analysis can help you do that. To say with absolute certainty, 100% certainty, that the market is going to be moving up from now on – you’re fooling yourself, if you do say that.
Because I have never, ever predicted the prices. I’ve looked at positions, I’ve said, “Hey, this stock has got to go up.” I’ve purchased calls on them. When I wasn’t doing my trading correctly, and I wasn’t trading with confidence, I would purchase calls, I would purchase a stock, and I would say, “This thing has got to go up.”
I would do all this technical analysis, and I thought it was going up – and it didn’t do anything, or it went down, about 70 or 80% of the time. My accuracy was only 30%. Out of 10 positions that I put on, only 3 of them would go up in the direction that I thought. The others would go down, and then all of a sudden, I would have to manage losses, rather than managing my risk. I was really managing the losses.
I really had to let those winners run. That is a totally different game than the one we’re talking about. You had to be in the market, every single day, watching your positions. I can tell you right now that stop losses are wonderful, but they don’t prevent you from large losses.
If you put a stop loss on a position, and the stock was trading at 40 yesterday, and bad news hit over the weekend – you’re sitting there Monday morning, with a 20% loss in your stock. You’re $8 lower, and your stop loss is going to get you out $8 lower. It’s not going to stop you out at 8% of the loss of the stock, a $2 or $3 loss. No, you’re going to get hit with an $8 loss.
That stop loss will trigger the market, get it out into the open, and it will turn into a market order. You’re going to be in a hurting position. That’s why we don’t really trust stop losses. When we go into the whole section about trading for wealth building, we’ll talk about all that stuff.
This is how we pare down our profits, at the end of a trade. We’re also going to be taking a look at our trade selection and strategy, for the next position.
I really wanted to give you the big picture here, because when you’re trading with confidence, it doesn’t matter what the market does. As you can see from my position here, I’m right in the sweet spot. And the market is down. If you take a look over here, the Dow is down 190 points, and my position is beautiful. Right in the center, here, is where all the profit is made. The market could go down another 200 points, and I would still be okay. It could go up 200 points, and I would be okay.
That’s why these kinds of positions are so powerful. You have a wide range that the market can move in. It doesn’t matter if it moves up or down. You’re going to be in a profitable position.
I have 1 contract here, and I’m making $400 in 2 weeks. If I had 10 contracts, I would be making $4000 in 2 weeks. If I had 20 contracts, I would be making $8000 in 2 weeks. How much money do you want to make? That’s the only question.