Happy Friday, Evolvers!

Today, we’ll dive deep into the mystery of trade alerts and I’ll reveal the secrets to using them correctly.

Then, we’ll look at one student’s recent woes when it comes to ‘holding and hoping,’ which illustrates why you should always cut your losses quickly.

But first, let’s discuss what’s going on in the overall markets…

Just as I predicted, the SPDR S&P 500 ETF Trust (NYSEARCA: SPY) got absolutely rocked yesterday, down nearly 2% intraday.

This bearishness is likely front-running today’s consumer price index (CPI) report as traders seem to be anticipating hotter-than-expected numbers.

Individual stocks on my watchlist for short positions have been dropping as well…

Congrats to anyone who had the conviction to short Nvidia Corporation (NASDAQ: NVDA), Tesla Inc. (NASDAQ: TSLA), or the ProShares Bitcoin Strategy ETF (NYSEARCA: BITO) into yesterday.

These three names will remain near the top of my watchlist for potential put plays next week. Don’t ignore them!

But for now, it’s time for our Friday Q&A. Keep reading to see my answers to your questions…

“I acted on one of your trade alerts and got in and out quickly, right when you sent the messages. But my results were very different from yours. Why did this happen?”

For future reference, it would be helpful to know exactly which trade you’re talking about so that I could examine it in more detail.

That said, you may have been trying to chase my alert and copy my trade without doing your own due diligence.

WARNING: You’ll never become a self-sufficient trader by chasing my alerts!

I don’t send my trade alerts because I want my students to piggyback on my trades…

On the contrary, I send my alerts out to give students an idea of what I’m doing and where my head’s at.

From there, it’s up to you to determine if the play fits into your strategy and game plan. 

You have to do your own research on the name, your own technical analysis on the chart, and choose strikes and expiration dates that suit you.

If you simply copy my exact trades, hoping to catch the gains that I do … you may get lucky occasionally, but you’ll never meaningfully improve. 

It’s like cheating on a test in a subject you really care about learning … you’re doing yourself a disservice.

So, instead of asking why your results weren’t exactly the same as mine … start building your own strategy that you can rely on.

Then, you can use my alerts as helpful guides as opposed to exact blueprints.

“If I have weekly contracts that are 50% in the red, why shouldn’t I continue holding these falling options until their expiration date? They could bounce back…”

There are a number of problems with this outlook, so let me address them one at a time…

First, holding losing trades is a recipe for disaster. What happens if the contracts don’t “bounce back?”

You might be able to afford one or two of these 100% losers, but your account won’t be able to take much more than that.

This is why I constantly advocate for Tim Sykes’ #1 rule — cutting losses immediately!

It’s better to take a small loss and move on to the next play than to ‘hold and hope’ that a subpar trade will miraculously reverse in your favor.

The only time I think it’s acceptable to hold a red position is on a longer-term play.

For example, I’ve taken a beating on my long-term BITO puts.

I never would’ve allowed a weekly play to go this far against my direction without cutting the trade. But with a longer-term play, sometimes you’ve gotta hold out…

Unfortunately, I was off on the timing and my contracts are down about 95% from where I bought them (-$60,000 on paper).

And at this point, the risk/reward of selling the contracts is terrible as I would only claw a few thousand back if I sold here.

But, of course, I wish I cut this trade much earlier. Long-term positions aren’t my specialty, anyway.

So, take it from me … don’t hold and hope. Cut your losses quickly!

Final Thoughts

Have a great weekend, Evolvers!

For now, I suggest avoiding long plays and focusing on your short positions.

Keep your watchlist tight, stay disciplined, and whatever you do … don’t ‘hold and hope!’