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Keeping the “Edge” Sharp

For me, trading is a passion. And I want to share that passion with as many people as possible because it makes me a better trader.

Happy Friday.

As most readers know by now, I’m not a big fan of taking new trading positions right in front of the weekend. So, rather than talk about the market, let’s open up the mailbag and see if there’s something educational inside…

Here’s a nice note from a current subscriber…

I just wanted to give you a quick shout out, and say thanks! Great job on the TWTR, AG, and URBN recommendations. I have learned so much from you over the past couple of years, and always look forward to reading your commentary every morning and throughout the day. I am very excited and looking forward to the roll out of your trading earnings algorithm, it sounds very interesting!

– Ryan R.

Gosh, thanks for the nice comment Ryan. I’m glad to hear you’ve profited off of my advice over the past couple of years.

But I have to tell you, I’m really excited to unveil my earnings trading system next week. I’ve created a lot of good systems over my 30-plus years in the market. But this one is my most exciting breakthrough.

I don’t want to oversell it. All trading systems have flaws. And this one isn’t perfect. But it’s the best way I’ve found to trade stocks around their earnings announcements.

I’ve had some amazing results trading the system with my own money over the past year. And we’ve done pretty well with the earnings trades I’ve recommended to subscribers over the past month.

We should have a lot of great opportunities to trade over the next several weeks.

We are huge fans. Jeff's trades “scalps” in previous years, helped us retire. GES was truly a reason to wake up each morning early and check his opinions prior to market open! Jeff, you have appreciative fans in Sonoma's Wine Country… 

– Henry M.

Thanks for the nice comment, Henry. I’m glad, and humbled, that you have profited from my advice. I’ll be offering my market commentary to subscribers for many years to come. With a little luck, we’ll have lots of profitable years (and lots of good wine weather for Sonoma County).

But here’s a subscriber who’s not quite as enamored with my research as you are…

Well, there's a reason you got dropped from Stansberry. Anybody who did all your trades in the Short Report lost a ton of money. The truth is that nobody knows what the market will do next. A market that is way down can go down further. A market that is way up can keep going up. If you sell puts most will expire worthless — and the few that don't will causes losses that wipe out all your gains. If you buy options most will lose money, and will wipe out the gains on the few that double or quadruple in price.

The truth is that options are priced pretty fairly, so the only people who consistently make money are the option market makers hedging away all the delta and eking out steady gains on the bid/ask spread. If you were one of the very few traders who could consistently make money on options, that is what you would do — instead of making money by selling a newsletter.

– Bob W.

I’ve always argued to my customer service representatives that, while I love getting positive feedback – because it’s motivational and inspires me to work even harder for the benefit of my subscribers – the negative feedback provides a greater opportunity to educate readers.

This is a terrific example…

Bob, I’m sad you had such a poor experience following my advice. I’m not sure where the problem is, though. In my 12-plus years writing for my previous publisher, I had a couple of bad years. But I had FAR MORE good years.

For example, in 2015, my “official” recommendations produced a modest 7% annualized return. But the scalp trades I recommended in my blog earned more than 253% annualized.

In my first newsletter for 2016, I told subscribers that if you didn’t make money with me in 2015, then you will never make money on my advice.

Sometimes, that’s just how it goes. My trading style is not the right fit for everyone. I’m conservative. I take small risks on a lot of trades. And I count on being right more often than not.

That certainly played out in 2016 when my recommendations in my weekly letter earned more than 118% annualized, and my scalp trades generated 175% annualized returns.

You are right that no one knows where the market is headed. But by looking at past situations, where similar conditions existed, we can gain an edge. And when you’re trading the short-term direction of the market, the difference between a profit and a loss usually comes down to the “edge.”

My trading style is probably not the right one for you. If you haven’t made money with me over the past two years, then I can’t possibly imagine an environment where you will profit off of my advice.

Though, plenty of folks have. And you thought well enough of my commentary to follow me over to my new publisher.

Here’s the thing that really gets me…

You said that if I was really that good at what I do, then I would just trade for a living rather than sell a newsletter.

Bob, I have to tell you, I make FAR MORE money trading every year than I will EVER make in the newsletter business.

When I closed my brokerage firm on September 30, 2007 – which should earn the “market timer of the century” award – I didn’t want to fall into the trap that so many other previously successful traders fell into. They left the trading business, retired, and figured they’d spend the rest of their days trading their own money.

But they discounted the value of “accountability.”

When they were trading other people’s money, they performed rigorous research. They had to explain the rationale behind their trades. And they were held accountable for their mistakes.

When these traders retired, accountability went out the window. And so did their success.

Instead of rigorously following the markets, these traders would put on their positions and then spend the rest of the day on the golf course, or in restaurants, or in bars. It was just their own money, after all. They weren’t handling other folks’ funds anymore. They figured that if they took a loss on a trade, they could easily make it back up.

You can guess what happened to most of these traders.

They lost the edge that made them successful traders. They stopped doing the research, performing the work, and sticking to the discipline that made them consistently profitable. And they ended up blowing up their accounts.

I didn’t want to do that.

So, when I retired from running my own brokerage firm in 2007, I focused my energy on my newsletter business.

I’m accountable for every trade I recommend. It doesn’t matter if it’s a recommendation with a complete write-up or a quick “scalp” trade. I know subscribers are putting their hard-earned money behind my advice. And I take that responsibility VERY seriously.

It’s that seriousness that forces me to delve into the details of the trade, and to perform the rigorous research that I used to provide to the clients of my brokerage firm. And it’s that sort of research that helps me maintain my “edge” in my own trading account.

This isn’t a selfless endeavor.

Yes, I hope folks can profit off of my advice. And I want to share my best trading ideas with as many people as possible. But if you want to boil it down to the lowest common denominator…

The reason I write a trading newsletter is because it keeps me sharp. It keeps me accountable to the value of my research. And it helps me maintain my edge as a trader.

I always give my best ideas to readers. But I still make a lot of money trading stocks and options. Much of that success is spun off from the discipline I have to instill by recommending trades to subscribers. I work as hard as I possibly can to make sure you can profit off of my advice.

It doesn’t always work out that way.

But if I thought for one moment that my trading ideas were causing more harm than good, then I’d gladly retire and spend the rest of my days lying on a hammock. I’ve made far more money than I – or more importantly, my wife – can ever spend.

For me, trading is a passion. I look forward to every day I have a chance to profit in the stock market. And I want to share that passion with as many people as possible because it makes me a better trader.

Best regards and good trading,

Jeff Clark

P.S. Like I said, feedback like this is what motivates me to keep the “edge” sharp every day I write to you. Keep it coming right here.