thinkMoney - Fall - 2021 - 53

October 2021

In this issue:

  • Big-Stock Trading with a Parachute
  • Portfolio Diversification Redux: Think Like a Trader
  • The Nuts and Bolts of MOMO Trading
  • Option Trader's Guide to the Markets (and Life)

Change, Adapt, Repeat

• FALL IS HERE, but we may not be operating at pre-pandemic levels like we thought we would be. People are starting to go back to the office, venture out to restaurants, and meet up with friends and family. But not like we used to.

Though we resist at first, we eventually adapt to change and get used to the new way of doing things. Look at stocks. The market evolved from floor trading to all-electronic trading, the rise of algo traders to an upsurge of meme stock retail traders. More companies went public, crypto became a household name, and, overall, companies had strong earnings. All this in the midst of a pandemic.

It’s great when optimism is high,butit also pays to be cautious. Healthy portfolios breed complacency, and the thought of losing may not cross your mind. But remember—markets correct. You just don’t know when. As a trader, it’s best to expect the worst and be prepared with strategies to protect your profits—especially with monster stocks priced in triple and quadrupledigits. In “Big Stock Trading with a Parachute” on page 16, you’ll discover three defined-risk options strategies you could apply to trading these stocks that are designed to keep you in theparty, yet minimize your losses, just in case things change.

If things don’t change much and the market continues to rally, discipline is key. Whether you’re trading meme stocks or post-earnings rallies, it’s tempting to jump into stocks with seemingly freight-train momentum.But take a step back and think hard about it. Momentum can be shortlived, so find stocks that look to have longer runs. In“The Nuts andBolts of MOMO Trading” on page 24, we walk you through a charting approach to help identify potential momentum stocks.

Change happens. And the most nimble, adaptive traders typically have a better chance of staying in the long game when things turn the wrong way.They stick to core money management strategies that keep them out of trouble and adapt new trading tactics that meet the market where it is.

Happy trading,

Kevin Lund

Editor-in-Chief, thinkMoney