Two Lessons That Helped Me Become a Master Trader

I’ve been on the ground floor of every major trading shift of the past generation.

From shouting myself hoarse in the trading pits… to having 20 phones ringing on my desk (and juggling a phone on both ears, with another on top of my head)… to the system we have now.

Technology has expanded access to the markets beyond financial professionals.

Now anyone can make trades with just a few clicks on their computer or phone.

But that doesn’t mean you should just jump right in… at least, not until you understand some key concepts.

In my 40 years of trading, I’ve weathered sentiment shifts, boom-and-bust cycles, inflation, and all kinds of economic conditions.

But even with all the changes I’ve seen, the most important lessons I’ve learned are just as valuable today as they were four decades ago.

So today, let me share some of my observations that can help you learn from my years of experience… and help you become a better trader even if you’re starting from scratch.

Lessons From the Pits

As I mentioned, I started trading in 1984 in the pits of the Chicago Board Options Exchange. At that time, it was open outcry, which means people were yelling and screaming at each other.

It looked like pure madness. If a trade came in, you would kill to get that trade in your account over the guy you’re standing next to.

But during this time, I learned what I would call “the presence of the pit.” I’d feel the positioning of the people in the crowds, whether they were long or short.

You had to get good at knowing how your neighbor standing next to you was reacting and what they were trading. So you were not only reading the tape but seeing intermarket relationships.

That’s been a key part of my trading strategies ever since. By recognizing the relationships between stocks… currencies… commodities… and more, you can find the best setups.

Understanding correlations and how assets typically track against each other enables me to identify when they’re out of whack.

This can even be between stock indexes.

In June, I spotted how the Dow Jones was underperforming the Nasdaq and S&P 500. And I knew that left it primed to revert to the upside.

After all, when an index’s performance becomes too stretched in one direction, it often snaps back the other way.

All that remained was knowing when the setup was primed to play out. And I sent out two alerts over the course of June to take advantage.

That handed my One Ticker Trader subscribers 66.9% and 100% wins, each in about six days.

And this ties into the second lesson I learned…

Focus Your Efforts

In 1989, I started working at a company called Spear, Leeds, & Kellogg. At the time, it was one of the largest trading firms around.

While there, they made me a specialist, which meant I helped run trades on a very high-volatility product, XMI, which was sort of like the SPX now.

My job was to sit on a big podium with a crowd of 200 traders in front of me. I’d be on a microphone, making markets. I was able to turn my knowledge of being a pit trader into handling all the order flow for XMI.

By focusing on just one thing, I started to really learn what made it tick and how to trade it.

That’s exactly how the big institutions and hedge funds approach trading. They’ll have one person, or even a team of people, specialize in just one part of the market.

Not only is it about understanding what fundamentals make a stock tick…

It’s also about gaining an understanding of the money flow and momentum. Like knowing not to buy into a stock or sector when “big money” (like hedge funds) are heading for the exits.

Now, with so much information available and so much to process, sticking to one stock or product makes the most sense – especially when markets are volatile.

This is another important lesson for rookie traders to learn…

Rather than splitting your attention, you’re far more likely to succeed when you focus on one trading subject.

There was no way I could’ve done my own job and known as much about multiple other market sectors at the same time.

Instead, I had to focus on the relationships between XMI and other markets… learn how it reacted to economic news… and study its patterns over time.

Specialization like this is hard to compete against.

That’s also why I started my One Ticker Trader service. In One Ticker Trader, we focus on just one trading theme each month. (Sometimes the theme is so profitable, it will continue for several months in a row.)

This lets us dive deep and trade our chosen stock in both directions, taking advantage of any moves it gives us.

And so far this year, we’ve generated an average of 38.9% per trade using this strategy.

For context, the S&P 500 is up 9.3% this year, which means we’ve more than quadrupled that performance.

Long gone are the days of shouting to fill trade orders, or tangled-up phone lines…

But just because it’s easier to enter a trade these days doesn’t mean the lessons I learned years ago have gone away.

In fact, if you follow them, they can still give you an edge.

And by sharing my experiences, I aim to help you become a smarter trader and rack up more profits than losses.

Happy Trading,

Larry Benedict
Editor, Trading With Larry Benedict