"There's a million ways to make money in the markets; unfortunately, they're all very difficult to find." - Jack Schwager
Profitability in the financial markets is based on math, not predictions and opinions. Here are the ten mathematical paths to profitability:
Have a high win rate where your winning and losing trades are similar in size. Your profitability comes from the quantity of winning trades.
Create a reward/risk ratio of 2:1 or better in your trades, where your winning trades are maximized and your losing trades are minimized.
Trend following is when you are bullish in uptrends and bearish in downtrends, profiting by being on the right side of the market trend.
Trading a systematic process that is back tested to be profitable based on sound principles.
Buying and holding growth stocks that are the winners of their sector and industry.
Investing in sound companies with great fundamentals that you can buy with a huge margin of safety and hold them long term.
Buy extreme fear during market crashes, or sell euphoria short near the top of bubbles.
Sell low-probability option contracts with a hedge in place.
Buy small far out-of-the-money options over and over until you make one big outsized win.
Trade with a positive expectancy: What is positive expectancy? Here's an .xlsx-friendly formula: Expectancy = ((PW*AW) – (PL*AL))*F. Where PW = % Win; AW = Average Win; PL = %Losses; AL = Average Loss; F = Frequency
Note: You have to trade a process that fits your beliefs about the markets and your available screen time. Position sizing must also be structured to avoid the risk of ruin. Without discipline and self-control, no trading system will be profitable.
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