What Gives Me the Edge as a Trader

[Trading With Larry Benedict]( What Gives Me the Edge as a Trader Larry’s note: Welcome to Trading with Larry Benedict, the brand new free daily eletter, designed and written to help you make sense of today’s markets. I’m glad you can join us. My name is Larry Benedict. I’ve been trading the markets for over 30 years. I got my start in 1984, working in the Chicago Board Options Exchange. From there, I moved on to manage my own $800 million hedge fund, where I had 20 profitable years in a row. But these days, rather than just trading for billionaires, I spend a large part of my time helping regular investors make money from the markets. My goal with these essays is to give you insight on the most interesting areas of the market for traders right now. Let’s get right into it… By Larry Benedict, editor, Trading With Larry Benedict When you first start to trade, it’s best to stick to just a small number of stocks. You might even start with just one. That’s what I did. As a floor trader at the Chicago Board Options Exchange during the 1980s, I spent years trading one, two – and eventually just a handful of stocks or indices, over and over again. Even to this day, the S&P 500 index is my go-to market to trade. By focusing on just a few stocks or indices, you quickly learn how they react to any news event. Before long, you’ll know them like the back of your hand. Knowing everything about a stock or index is key. However, there are other things I use to put the odds in my favor. One of those is gauging how markets move in relation to each other. And then learning how to profit from it. This relationship is called correlation. It’s a key part of my trading strategy. Now, there are many examples of correlations in the market. Like the S&P 500 index against the oil price. Or, Bitcoin versus gold. Markets all move in relation to each other. Sometimes in tandem, other times in opposite directions. By watching one market, it can help you predict what another market might do. One correlation that precious metal traders have watched for a long time is that between gold and silver. The chart below plots the ratio of gold against silver over the last 30 years. Gold / Silver Ratio [Image] Source: macrotrends The jagged blue line in the chart measures the multiple at which gold trades to silver, per ounce. Meaning, that if silver is trading at $20 an ounce, and the gold silver ratio is 80, then gold will be trading at $1,600 per ounce (80 x $20 = $1,600). The upper red horizontal line in the chart indicates where gold trades at 80 times the value of silver. The bottom red line shows where this ratio is around 45. You can see that for most of the last 30 years, gold has traded between 45 and 80 times the price of silver. You can use this correlation as a guide for many types of trades. For example, if both gold and silver are trending higher – along with the gold / silver ratio – I would likely buy gold over silver. That’s because if the trends hold, gold will rally more strongly than silver. If the opposite occurred – all three trending lower – I would look to short gold instead of silver. In this scenario, gold would likely fall quicker than silver. And so on. You can use correlations like this as a guide for when to place gold and silver trades. Importantly, correlations exist across all types of markets – in stocks, commodities, indices, and bonds. From one market and sector to another. To be clear, it doesn’t mean you have to trade all these other markets. As I mentioned at the top, I encourage you to pick just one or two stocks or indices and stick with them. However, it’s beneficial to watch other markets that you’re not familiar with. Then, pay attention to how they correlate to the market you’re trading. Once you get a feel for how they move, you can add them to your trading arsenal. Bottom line: By understanding correlations – along with [trends]( and [mean reversion]( – there’s no doubt it will give you a big edge as a trader. Regards, Larry Benedict Editor, Trading with Larry Benedict P.S. We’re excited to hear what you think of your new eletter, Trading With Larry Benedict. Let us know at feedback@opportunistictrader.com. [The Opportunistic Trader]( The Opportunistic Trader 55 NE 5th Avenue, Delray Beach, FL 33483 [www.opportunistictrader.com]( To ensure our emails continue reaching your inbox, please [add our email address]( to your address book. This editorial email containing advertisements was sent to {EMAIL} because you subscribed to this service. To stop receiving these emails, click [here](. The Opportunistic Trader welcomes your feedback and questions. But please note: The law prohibits us from giving personalized advice. To contact Customer Service, call toll free Domestic/International: 1-888-208-6550, Mon–Fri, 9am–5pm ET, or email us [here](mailto:feedback@opportunistictrader.com). © 2021 Omnia Research, LLC. All rights reserved. Any reproduction, copying, or redistribution of our content, in whole or in part, is prohibited without written permission from Omnia Research, LLC. [Privacy Policy]( | [Terms of Use](