It was back in March… and I really liked the trading setup on PayPal Holdings (PYPL).
The stock had recently collapsed with the broader market. But as I shared at the time, PYPL was due for a snapback. The stock was trading well below its moving averages and was showing signs of a resurgence.
I recommended my subscribers place a short-term trade on PYPL on March 15. And we didn’t have to wait long…
Just two days later, we closed out the trade for a 130% return. That’s not too shabby. But here’s the thing. The stock continued to climb over the next week. Had we held on a little longer, the return on the trade would have been even better.
Whenever this happens, I usually see readers write in asking why we didn’t hold on a bit longer to get more “juice” out of the trade. And I always answer the same way.
Let’s Make a Deal
Imagine you’re a contestant on the game show Let’s Make a Deal.
Monty Hall pulls you out of the audience. He waves $2,000 in your face and says, “This is your money. You can take it and keep it right now, or you can trade it for what’s behind the curtain.”
Of course, you know from a lifetime of watching daytime television that there’s a 50% chance that what’s behind the curtain is an all-expenses-paid trip to Mazatlán – valued at $5,000 – and a 50% chance that it’s something virtually worthless, like a farm animal.
What do you do?
If it’s me… I’m taking the cash.
I’m thinking, “I came here with nothing. There’s a 100% chance I’ll leave here better off if I take the money. There’s only a 50% chance I’ll leave here happy if I take what’s behind the curtain.
Either way… my life isn’t going to change dramatically. So, I’ll take the $2,000 and be happy no matter what.”
Here’s another line of thought…
“I came here with nothing. The worst case is I’ll leave here with nothing. But there’s a 50% chance to increase the return on my prize by 150%. The odds justify that trade. So, I’ll pick what’s behind the curtain.”
Here’s the thing… there’s nothing wrong with either decision. All that matters is how you view the consequences of the trade.
I’ll Take Happy
I’m going to be happy if I get a $2,000 profit. I might be slightly more ecstatic if I win a trip valued at $5,000. But I’ll feel like an idiot if I give up the $2,000 and go home with a goat.
So, I’ll pass on “ecstatic.” I’ll take “happy.”
Not everyone thinks that way – which is why we love watching game shows.
Let’s apply this thought process to the stock market…
Every time I close a trade, in the back of my mind, a little voice asks, “What happens if it moves even higher?”
This is the equivalent of Monty Hall asking if I want to keep the $2,000 or trade it for what’s behind the curtain.
I know for sure that I’m happy if I close the trade right now. I don’t know if I’ll be happier or feel like an idiot later.
So, I almost always choose to err on the side of happiness.
Now… if this is your only time on a game show… if it’s your only chance to make a trade in front of Monty Hall, it’s understandable if you choose what’s behind the curtain.
After all, it’s your only shot to maximize your gains.
I get it.
But the stock market isn’t a game show. We have trading opportunities almost every single day. The secret to longevity as a trader is to consistently take the money when it’s flashed in front of you.
You might feel a tinge of disappointment if a trip to Mazatlán is behind the curtain. But you’re still heading home with more money than you had before.
Be happy. At least you’re not going home with a goat.
And if we can accept this mindset, then I believe 2022 could be very profitable for us as traders.
A Looming Market “Snap”
Here’s what I want to put on your radar now…
There’s a $4 trillion event right around the corner that could cause dozens of popular stocks to freefall overnight, causing a market “snap.”
The result? A rapid-fire barrage of profit opportunities on some of the biggest stocks in the market.
In my entire 40-year career in the markets, I’ve seen this kind of setup only a few times before. Unfortunately, because most folks are glued to the television watching the financial talking heads, they’ll miss it.
Failure to prepare for this snap could be devastating, especially if you’re a buy and hold investor.
So for folks managing their own money, this may be the most important event you need to pay attention to right now…
Best regards and good trading,
Editor, Jeff Clark Trader