If only logic and reasoning made money in trading, traders with above average IQ’s would be millionaires.

by zen4ever99

There are many post here, which logically makes sense i.e to buy puts or have a negative view on the markets. Shorting stocks or index in a time of unresolved COVID issue seems a no brainer. Airlines, hotels, cruiselines, automotives and a wide variety of other business that have lost or are losing customers and revenue, or even facing bankruptcy seems like once in a lifetime opportunity to make a hundred thousand odd dollars or two by shorting the stocks or the index.

But in reality, many of the bearish traders have lost their shirt and are now bruised bears. Just think about this from another point of view. For every trader buying puts, there is also an option seller. The option seller is just as informed if not more than the put buyer. This is because as a seller, he is taking a huge risk on the downside for a limited amount of premium. Now why would he do that? Or ask yourself, what information, data, insight or strategy an option seller has that gives him the confidence to sell puts when there is a negative perception of stocks in the market?

From what has happened till now, it would seem that the option sellers had factored in profit booking of shorts, short covering of bears, the stimulus and money printing machine from the Fed etc. which has led to a sharp pull back in the market resulting in many a bears to lose their shirt.

For making money in the market, a trader needs to align himself to the market sentiments and not fight it. Hence, logic alone cannot be the criteria to trade. Market timing is also important. and there will be opportunity to short. The market will give clues. Once there is limited upmoves, or congestion on the upside, bears will take control of the situation. It is at that time an individual trader can take a position which is in line with market sentiments and logic. Trading on the basis of only having a logical and rational view is highly risky if not supported by market data/charts in the short term.

Hence, study of market sentiments besides rational and logic is also necessary.

Hence believe that besides logic and reasoning, trading in line with the market sentiments (and not against it) is the way to make money.

 

Disclaimer: This information is only for educational purposes. Do not make any investment decisions based on the information in this article. Do you own due diligence.