At least once a week, I get asked if I can teach some kind of a “zero loss strategy”.
It’s a very innocent question and I completely empathize with those who ask it.However, my situation is that of a gym instructor who is constantly being asked if I can offer a pain-free strategy to build muscles. You can imagine my frustration.
If the idea of building a strong physique without incurring any pain sounds ludicrous then so should be the idea of being a profitable trader without incurring any losses.
Yes, there is one zero-loss strategy in the stock market and that is to “sit on cash”.I promise you will never lose a dime if you sit on cash and don’t take a trade.I am guessing you do want to trade and so sitting on cash is not an option.
Before you curse me and go back to Google for finding another article where the “real secrets” of no loss strategy are revealed, just hear me out.You will thank me later.
I am not trying to make fun of those who are risk-averse. I am the biggest proponent of risk management you would find. What I want isto have a serious discussion about this “zero loss” mindset that beginners have.
Losses are inevitable in trading because traders deal with probabilities.There are hundreds and even thousands of variables that move the market and it is impossible for any trader to know them all. A trader is just operating within the bounds of his knowledge and skills.
Even the most astute traders I have met and worked with have a success rate of about 60-65% (and I am talking about traders who earn in 7 digits monthly).
It means even the best traders out there lose money 35-40% of the time.
The answer to that is obviously “no”.The real questions beginners should be asking are:
- Do I have a strategy that has a consistent success rate?
- How much do I make when I am right?
- How much do I lose when I am wrong?
Trust me, if you’re asking these 3 questions, you are on the right track.
Let’s take a moment to acknowledge that nobody likes to take a loss. I have been trading for over 16 years and even now a 1 rupee loss pinches me.Of course, my rational brain shrugs it off but my emotional brain cringes with every red trade.
We all have these 2 brains within us. Unfortunately, the default setting is such that the emotional brain has disproportionate power over the rational brain and the boss never wants to see a loss.
Successful traders, on the other hand,train their rational brains to be the dominating part of their personalities. It doesn’t mean that the emotional brain goes away- it’s still out there cringing but it doesn’t have any controlling power.
Every trade ends up in one of the following:
- Small profit
- Small loss
- Big profit
- Big loss
Your job as a trader is to LOVE the first 3 (yeah, even the small losses) and make sure you never incur a big loss. As a corollary, don’t go looking for a zero-loss strategy; go looking for a strategy that has a higher success rate and that never incurs big losses.
I am waiting for the day when instead of “zero loss” people ask me about “small loss strategy”.
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FAQs
There is only one “Zero loss strategy”
Yes, there is one zero-loss strategy in the stock market and that is to “sit on cash”. I promise you will never lose a dime if you sit on cash and don't take a trade.
What is the most popular 0DTE strategy? ›
Some of the most popular 0DTE strategies are selling call or put spreads, and iron condors (a call spread + a put spread of equal strike distances).
What is the zero loss method? ›
Zero-based, or zero loss, thinking is a performance management mind-set in which there is no acceptable level of failure: no poor quality. no breakdowns. no delays.
Where to trade 0DTE options? ›
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In reality, there is only one way to achieve no-loss Forex trading – and that's to avoid trading entirely. By nature, FX trading has always been synonymous with risks. If you are not open to the idea of sometimes taking losses, then financial trading is definitely not for you.
What is an example of a zero cost strategy? ›
One example of a zero-cost trading strategy is the zero-cost cylinder. In this options trading strategy, the investor works with two out-of-the-money options, either buying a call and selling a put, or buying a put and selling a call.
How to profit from 0DTE? ›
Cboe data shows that 95% of 0DTE volume is done with defined-risk strategies. One of the most popular approaches among 0DTE traders is selling call vertical and/or put vertical spreads to capture time premium (“theta”). Many traders take a balanced approach and sell vertical spreads on both sides of the market.
Are 0DTE options more profitable? ›
0DTE options are more sensitive to sudden price movements and market volatility due to their short-term nature. While this volatility can present opportunities for profit, it also increases the risk of substantial losses. The bid-ask spread for 0DTE options can be wider compared to regular options.
What is the most profitable trading strategy of all time? ›
One of the ways beginners can implement the most profitable trading strategies effectively is by embracing the buy-and-hold strategy. This involves researching companies with solid fundamentals and stable earnings, then holding their stocks for a long time without being swayed by short-term market fluctuations.
What is the zero day option trading strategy? ›
A 0DTE strategy establishes a position on the option contract's expiration day, though these option contracts may have been listed days, weeks or months ago. The option contracts could be tied to the price of indexes, exchange-traded funds (ETFs) or single stocks. Use of 0DTE option strategies is on the rise.
With the zero price effect, the increase in demand when the price drops to zero is much higher than at other prices. In other words: “free goods have extra pulling power.” Generally, we evaluate whether an item is worth acquiring by its financial cost, effort to acquire, and benefit to us.
What is a zero-cost option? ›
A zero-cost collar is an options collar strategy that is designed to protect a trader's potential downside. It does this by utilising call and put options which, in effect, cancel each other out. While it will put a cap on potential losses arising from the trade, it will also cap potential profits.
Does Warren Buffett trade in options? ›
One of Warren Buffett's favorite trading tactics is selling put options. He loves to find assets that he thinks are undervalued and agrees to own them at even lower prices. In the interim, he collects option premium today which should the asset go lower in price it also helps reduce his cost basis.
Why do people buy 0DTE? ›
0DTE options are potentially less expensive compared to options with more days to expiration, or DTE (premiums can be in cents for 0DTEs versus dollars for longer-DTE options). The 0DTE market tends to exhibit little difference between the bid and ask price of each option—also known as a tight spread.
Does Fidelity allow 0DTE? ›
Currently, an account must have equity of $1 million or greater to trade 0 Day to Expiration (DTE) options. While we don't have anything new to announce regarding this, we appreciate your feedback and will pass it on to the right teams.
What is the zero line strategy? ›
The zero-line is a trading strategy that uses the charting of the trading price of an asset to determine the entry point. The strategy uses a short-term timeframe, with two long-term Commodity Channel Index (CCI), and a single exponential moving average.
What is the best stop loss strategy? ›
Summary and conclusion - Stop-loss strategies work
The best trailing stop-loss percentage to use is either 15% or 20% If you use a pure momentum strategy a stop loss strategy can help you to completely avoid market crashes, and even earn you a small profit while the market loses 50%
What is a 0 day option strategy? ›
What is a zero-days-to-expiration (0DTE) option? A 0DTE option is an options contract set to expire at the end of the current trading day. Every options contract on an underlying optionable, index, stock, or ETF, whether it was issued a month ago or just last week, becomes a 0DTE on its expiration date.
What is a zero cost hedge strategy? ›
As the name suggests, a zero-cost hedge is a hedging strategy that doesn't have upfront costs. The hedge is constructed in such a way that any premium you have to pay to set up the hedge cancels itself out. To create a zero-cost hedge, you'd typically do the following: Buy an option and Sell an option at the same time.
