REVEALED: What Traders Spend Far Too Much Time On

REVEALED: What Traders Spend Far Too Much Time On

Posted On September 10, 2021 3:50 pm

For nearly two years, I’ve emphasized that “Main Street” is not “Wall Streetin order to explain how — during the pandemic — several individuals and small businesses went bankrupt while equity and other assets kept inflating.

The old labor vs capital squall is well documented.  That being said, there are many reasons wealth inequality has accelerated in the past 5-10 years. However, we can make it easy and blame the Federal Reserve.  

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If you are anything like me, you’ll be flummoxed as to how the S&P 500 Index (SPY) and Nasdaq 100 (QQQ) have powered off the March 2020 lows gaining a whopping  83% and 81% respectively, in the past 24 months; sitting less than 2% below all-time highs.

The straight-edge ruler tells the story of “up and to the right” to the point of creepiness. 

spy 500 stock charts

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qqq invesco stock chart

I write, quote, and speak of  “the market” in terms of the SPY and QQQ. But, they have such a heavy hand on the scale that it’s hard to fairly call them “the market.” We’ve gone through this before; the cap-weighting issues of these ETFs leave the top five stocks representing 47% and 38% of the QQQ, and SPY respectively. 

However, make no mistake about it, trading individual names (let alone other asset classes such as crypto, which are also enjoying great inflation) has become dislodged, or unconnected from the headline index they supposedly represent. 

This indicates that too many traders spend far too much time worrying about the indices and big picture macro-matters rather than the stocks they hold. This year has been a particularly good example of how the indices don’t always represent what’s predominantly happening with the majority of stocks. Rather than trying to time the market by looking at the indices, it’s best to time it by managing the individual stocks you own. When they act poorly, you sell them and raise cash. That, in my opinion, is “the best” timing of all.

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About author

Steve Smith

Steve Smith have been involved in all facets of the investment industry in a variety of roles ranging from speculator, educator, manager and advisor. This has taken him from the trading floors of Chicago to hedge funds on Wall Street to the world online. From 1987 to 1996, he served as a market maker at the Chicago Board of Options Exchange (CBOE) and Chicago Board of Trade (CBOT). From 1997 to 2007, he was a Senior Columnist and Managing Editor for TheStreet.com, handling their Option Alert and Short Report newsletters. The Option Alert was awarded the MIN “best business newsletter” in 2006. From 2009 to 2013, Smith was a Senior Columnist and Managing Editor for Minyanville’s OptionSmith newsletter, as well as a Risk Manager Consultant for New Vernon Capital LLC. Smith acted as an advisor to build models and option strategies to reduce portfolio exposure and enhance returns for the four main funds. Since 2015, he has worked for Adam Mesh Trading Group. There, he has managed Options360 and Earning 360, been co-leader of Option Academy, and contributed to The Option Specialist website.