How does Jon Najarian conduct high-probability trades?

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How we make high winning trades to become an expert with a winning edge in forex trading is a topic of interest to many investors. Let's take a look at how investment guru Jon Najarian makes high winning trades?

Risk analysis: Trading is like a poker game

Najarian wants to increase his odds as much as possible before making any trade because he is risk-averse.

"I sleep like a baby, when we enter the market and establish large positions, the odds are usually high because we have done our homework in advance and are very confident. If we judge wrong, we cut it off, admit the loss, and move on."

"Some traders hire professional chess players or gamblers. We value card-counting skills, I don't think this is gambling. When we go to the casino, the purpose is to work. Only by knowing our odds, we can sit at the table. We have several traders who can remember several decks of cards."

"When they enter the market, they want to have the highest odds. The same is true for trading. When the opportunity comes, we will count cards, pre-plan the next plan, and calculate the advantages we have as much as possible. Many cards have been turned over on the table."

"If an important earnings report is to be announced tomorrow, Morgan, Lehman, or Solomon will often buy in large quantities. They may have an information advantage, so we have to control the risk and bet in their direction."

"I think the probability of stocks rising and falling is similar. Just like the card counting masters in the casino, we observe the long-term trend chart, calculate the price pattern at that time, and evaluate whether the profit potential is higher than the loss risk before placing a bet, so we can always get favorable odds."

"However, observing the pattern itself is not enough. There are a lot of nautical charts in the sunken ships at the bottom of the sea. So, we can't just rely on the pattern."

"Secondly, we observe the buyers and sellers. Similarly, in derivative trading, we observe Solomon, Morgan Stanley, and Lehman. If they keep buying a certain stock, we know they are betting on the market to rise. We collect all the information. If the price pattern on the trend chart is very good, institutional buying continues to enter the market, and we must also consider whether there is any news."

"Is the earnings report about to be announced? Are the comments from all aspects very favorable? Is a new product about to be launched? Is there a legal lawsuit that is about to be pronounced? After a comprehensive evaluation, once we place a bet, we always have a significant advantage. Many people can't grasp this kind of information, so they need to accumulate more odds for themselves."

How does Jon Najarian perceive trading risk? Few people imagine professional traders as risk-averse and safety-first people, let alone top traders. But risk aversion and safety first are the characteristics of excellent traders.

Therefore, when Najarian enters the market and establishes a position, he requires that the profit potential must be much greater than the potential loss, even if the transaction is very unlikely to lose.

"The lowest risk/reward ratio I can accept is 1:1, but it is usually 1:2 or 1:3. If I buy a stock at $30 and set the upper target at $35, then the stop loss must be set at $29 or $28 so that the profit potential is several times the potential loss. If my opinion is wrong, I will admit the loss and move on."

"If the correct profit is only $5, you can't say: 'If I judge wrong, I am willing to hold the stock down to $20.' Otherwise, the trading career may be very short."

"I do not accept a larger potential risk. Even if I think the stock price must rise, I cannot take a $10 downside risk for a $5 profit. This is an unacceptable risk."

Exit: Pull the trigger, hit the target

Many traders pay great attention to how to screen trading targets but ignore how to end positions. They seem to expect the trading gods to show up in time and tell them the correct exit time. How to end a position? The importance of this question is not less than how to establish a position. For Najarian, there is a close connection between the reason for entering the market and the reason for exiting.

"Once the event we expect happens, we end the position. What exactly is the 'trigger' for establishing a trade? If the trigger is the earnings report, then after the earnings are announced, I pull the trigger, 'boom' and exit."

"If I think the driving force for the price rise comes from the announcement of new products, resource exploration, or the inflow of funds from mutual funds, as long as the news is confirmed, I will exit immediately, otherwise, I will no longer have any advantage."

How to apply the news trading strategy in practice? "I won't buy a stock because of an article in Business Week or Forbes magazine, although they are both good magazines and provide a lot of information. I will integrate all the information and set the trigger for a trade. Where does the price drive of this stock come from? If the reason for buying is a stock recommended by an analyst or association, once the news is announced, I will exit, unless there is another reason."

Even if the stock does not reach the target price, the concept of the trigger also applies, but it is often difficult. If the stock price does not reach the expected price, of course, you will be disappointed, you may reinterpret the trigger, convince yourself that the original trigger is no longer applicable, or a new trigger appears.

In short, find various reasons to avoid ending the position. You have to understand this psychological temptation and find a way to avoid this trap. As Najarian explained next, the trigger should be part of the trading plan.

"Fewer and fewer traders engage in some impromptu trades, and futures traders are more likely to have this situation. Generally speaking, derivative product traders have some scenarios in their minds, and stocks will rise or fall for some reason."

"Then, they formulate some corresponding plans, ready to deal with the cards in their hands patterns, company recommendations, or other reasons. They evaluate the relevant information and increasingly believe that they should bet on one side of the market. Finally, they judge how to enter the market with the most confidence."

How to judge that a trade will not exit too early? Is it possible for a losing position to turn defeat into victory? These are questions that traders often feel confused about. Najarian provides some suggestions.

"The point is still 'target trading'. If the trader adopts a combat plan and sets the trading target, then he does not cut the loss but cuts the entire trade. If I estimate that the stock may rise to $35, and the result is a loss of $27, I do not reduce the holding at $27, I end the trade at $27, and I admit the loss."

"Then, if I think the situation has changed, based on some reason, I believe that the stock price has the potential to rise, will I re-enter the market at $28? Of course. But the reason for buying is not because $27 is cheaper, and I will not exit in batches at $27."

"Similarly, assuming I buy an option at $4, the upper target is $6, and the lower stop loss is $3; soon, the price drops to $3, as long as the price continues to drop to $3, there is no event that will change my mind-exit immediately."

"I will not reduce the number of options held, but end the entire position. I will admit the loss and move on. I would rather deal with the mistake once and for all, and not repeat the same mistake. Get rid of the pain and admit the loss."

Therefore, as soon as the exit target is touched, Najarian exits. He will not exit in batches, because there is no reason to do so; set the target, if it is touched, exit-all or nothing.

By studying Jon Najarian's actual trading operations, we get a clear understanding of how high winning trades work in forex trading. In the future, we have to practice regularly in forex trading to get more results.

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