Today we would like to address the current market (Jan 24, 2020) constantly going up and explain why the higher the market the less the profit we would potentially make!
In the business of trading, most of the traders would use some leverage or tools to maximize the profit of the market movements. Markets that move up and down are the trader’s best friend. The volatility allows the traders to get advantage of the market.
Unfortunately, we have the situation that the S&P is constantly moving up and the higher it gets the less profit the smart traders would do because of the less risk he would be ready to take. The unwritten rule for the stock market: the lasts will be the first to get out, and this is what could happen if the stock market corrects abruptly from the current levels.
Beginner traders jump heavy on the market mislead by the constantly higher getting stock values, eventually using also higher leverage. At the moment the market turns back, they would be the first to drop their positions.
Of course in this situation, the question could arise, why not shorting the market, if we believe it is too high?
The answer to this is very simple, it is not about what we believe or not but it is up to the market to decide. Never put your belief system first before you decide to execute a trade. Nobody could tell for sure when the market will correct, better watch out for the first true signs of market correction before taking action. Until then we would make sure that we reduce the risk of our trades as good as possible by opening fewer positions and recommend you to use less leverage.