Spencer Li

Momentum Trading Strategy: What the Research Says, and Why It Crashes

Momentum trading, by the research - trading strategies

The 2 kinds of momentum, the evidence behind them, the weeks when they fail, and a simple 3-step check

Published: 19 September 2026 · By Spencer Li, CFTe

A momentum trading strategy buys whatever has risen the most over the past few months and avoids, or sells short, whatever has fallen the most. The bet is that strong prices tend to stay strong for a while, and weak prices tend to stay weak.

It sounds too simple to work, but it is one of the best-tested ideas in finance. Researchers have found it in stocks, bonds, currencies and commodities, across many decades and many countries.

There is a catch, though. Momentum has rare, violent losing streaks, and they tend to arrive just as a beaten-down market starts to recover. The edge also shrinks once trading costs come out. Below are the 2 kinds of momentum, what the research says, and a simple 3-step check.

Buy the leader only if it also beats cash. Summary card for the post: Momentum Trading Strategy: What the Research Says, and Why It Crashes.

What are the 2 types of momentum?

The word “momentum” covers 2 different questions, and most confusion comes from mixing them up.

Relative momentum asks: which of these assets has risen more than the others? Academics call it cross-sectional momentum. You rank a group of stocks or funds by their past return and buy the leaders.

Absolute momentum asks: has this asset risen at all? Academics call it time-series momentum. You look at one asset on its own and only hold it while its recent return is positive.

Relative momentumAbsolute momentum
The questionIs it beating its peers?Is it rising at all?
Also calledCross-sectional momentum, relative strengthTime-series momentum, trend following
Typical lookback3 to 12 monthsAbout 12 months
What it needsA group of assets to rankJust 1 asset
What it does in a bear marketStill buys the “best” of a falling groupMoves you to cash or bonds
Main riskCrashes at sharp reboundsWhipsaws in sideways markets

The second kind is close to what our post on trend following describes. And neither kind is the same as a momentum indicator, which measures how fast price is moving on a chart over a few days. A trader can use that indicator without running a momentum strategy at all.

Does momentum trading actually work?

On the long-run evidence, yes, it has.

The modern research starts with a 1993 paper by Narasimhan Jegadeesh and Sheridan Titman, who found that stocks with the best returns over the past 3 to 12 months kept beating the worst ones over the next few months. Critics said they had simply found a pattern by chance. So in 2001 the same authors checked the years after their paper, and reported that “momentum profits have continued in the 1990’s suggesting that the original results were not a product of data snooping bias.”

The absolute kind has similar backing. A 2012 study by Tobias Moskowitz, Yao Hua Ooi and Lasse Pedersen looked at 58 futures and currency markets over more than 25 years. They found that “the past 12-month excess return of each instrument is a positive predictor of its future return.” The effect “persists for about a year and then partially reverses over longer horizons.”

That last phrase is worth noticing. Momentum is a medium-term effect. Over the following 4 to 5 years, the 2001 paper found the winners tended to give some of it back.

One practical point surprises most new traders. Most momentum research ranks assets by their total return over a past period, often the last 12 months, leaving out the most recent month. It does not use the RSI or a moving average crossover.

A trader on a swing trading forum learned this the hard way. He screened for stocks above their 20 and 50-day averages with an RSI near 45 to 50, and could not find a single stock in a clear uptrend. That screen is looking for a pullback inside a trend, which is a different job.

If you want a simple daily routine for reading trends before you trade them, our free 15-Minute Swing Trader’s Checklist covers it. Get the free checklist →

How do momentum traders pick what to buy?

There are 2 well-known published approaches, and they come from opposite ends of the market.

Gary Antonacci’s Dual Momentum Investing (2015) uses both kinds together. Relative momentum picks the strongest asset, and absolute momentum decides whether to be invested at all. His argument is that relative momentum alone “raises returns without reducing risk,” because it still buys the best of a falling group. Adding the absolute check is meant to move the money to bonds when even the leader is losing to Treasury bills.

William O’Neil, who built a long career on stock leaders, used momentum differently. He rejected simply buying the stocks with the highest relative strength. He wanted stocks that were beating the market as they broke out of a sound base near a new high. In his own comparison, stocks bought that way worked 6 or 7 times in 10, against 3 or 4 times in 10 for stocks bought while sliding below their 10-week average. Our post with William O’Neil’s trading tips covers more of his thinking.

Why do momentum strategies crash?

This is the part most momentum sales pages leave out.

Kent Daniel and Tobias Moskowitz studied the worst stretches in a 2014 paper called “Momentum Crashes.” They found that momentum suffers “infrequent and persistent strings of negative returns.” The crashes, in their words, “occur in ‘panic’ states – following market declines and when market volatility is high – and are contemporaneous with market rebounds.”

Their numbers from 2009 show it plainly. From March to May 2009, the US market rose 26%. The past winners rose only 8%, while the past losers rose 163%. In July and August 1932, the market rose 82%, the winners 32% and the losers 232%.

The reason is simple. After a long fall, the “winners” are the stocks that fell least, often the dull, defensive ones. The “losers” are the most beaten-down, riskiest names. When fear lifts, the riskiest names bounce hardest. A momentum book that is short the losers gets hurt badly. A long-only book of leaders is not wiped out, but it badly lags.

Momentum also has a lumpy feel, even in good years. A trader posted on a swing trading forum after his momentum screener gave him 3 signals in 1 week. One collapsed, one ran hard, and one did nothing. His verdict was: “I think I got all 3 expected outcomes.” That is a fair summary of how this style feels from trade to trade.

Does the momentum edge still exist after costs?

The honest answer is smaller than the textbook numbers suggest.

Research by David McLean and Jeffrey Pontiff, published in 2016, found that across many published market patterns, about half of the original return disappears once the paper is out and traders start acting on it. Momentum also trades often, because the leaders keep changing. Every commission and every bit of slippage comes out of the edge.

To be fair to the other side, the 2001 Jegadeesh and Titman check is a real point in momentum’s favour. The profits continued after the 1993 paper, which is more than many published patterns can say. What has shrunk is the size of the edge, and the margin for error that comes with it.

How to use momentum: a 3-step check

Here is a simple way to use momentum without being run over by it. It works for picking a stock, a sector or a whole market.

  1. Rank the choices. Rank them by their return over the past 6 to 12 months, leaving out the most recent month. Look at the top of the list only.
  2. Check the leader against cash. Make sure the leader is also rising on its own, with a return above what cash pays. If even the leader is losing to cash, stand aside.
  3. Set the exit. Decide it before you buy. A fixed stop or a trailing stop loss keeps a single crash from taking a large share of the account.

Here is a hypothetical example with 5 made-up funds and a cash rate of 4% a year:

Hypothetical fundReturn over the past 12 months, excluding last monthBeats peers?Beats cash?
Fund A18%Yes, topYes
Fund B12%NoYes
Fund C6%NoYes
Fund D2%NoNo
Fund E-9%NoNo

Fund A passes the first 2 steps. Now imagine every fund is negative, with Fund A at -3%. It is still the “best,” but it fails the cash check, and the check says to hold cash instead.

Two sets of ranked bars: when the leader beats cash, buy the leader; when even the leader is below cash, hold cash
Buy the strongest choice only if it also beats cash; otherwise hold cash.

The Daniel and Moskowitz paper adds one more idea for the last step. A version of momentum that shrank its bets when its own risk was high “approximately doubles the alpha and Sharpe Ratio” of the plain version, in their tests. In plain terms, smaller positions in wild markets did much better than a fixed size.

Momentum works best as the reason to look at a stock, with the chart as the reason to buy it. The ranking narrows the list. The entry, the stop and the size still decide the result. For the entry side, see our post on the 4 types of trading setups.

So, when your strongest stocks lag on the first big up day after a fall, will you know whether that is a crash in the making or a normal wobble? And how much of your account would you let ride on a single leader? For more ways to build a system around rules like these, see the guide to trading strategies.

FAQ

What is momentum trading in simple terms?

It is buying assets that have risen the most over the past few months, on the evidence that strong prices tend to stay strong for a while, and exiting when that strength fades.

Is momentum trading profitable?

The research says momentum has paid over long periods across many markets. It also shows rare, sharp crashes, and about half of a published edge tends to fade once traders learn of it. Results depend heavily on costs, sizing and exits.

What is the difference between momentum and trend following?

Trend following is usually absolute momentum: holding an asset while it rises on its own. Momentum trading often means relative momentum, which ranks assets against each other and buys the leaders.

What timeframe does momentum trading use?

Most research looks at returns over the past 3 to 12 months and finds the effect lasts up to about a year. Short-term swing traders apply the same idea over weeks.

Is a momentum indicator the same as a momentum strategy?

No. A momentum indicator measures how fast price is moving over a few bars on a chart. A momentum strategy ranks assets by their return over months and holds the leaders.

Go deeper

Momentum tells you where the strength is. The free 15-Minute Swing Trader’s Checklist has the daily routine, the questions to ask before every trade, and the five rules that protect your account.

About the author. Spencer Li is The 15-Minute Trader and the founder of Synapse Trading. He is a Certified Financial Technician (CFTe) with 15+ years of trading, run from 70+ countries. He holds a B.Acc and B.BM from SMU. Every trade he takes is public, dated, losses left in. He teaches rules-based swing trading in 15 minutes a day, one system for any market.

Educational content only, not personalised financial advice. Trading carries risk, including loss of capital. Past performance is not indicative of future results. Synapse Trading is not licensed or regulated by MAS.

by
Spencer Li

Iron Condor Strategy: How It Works, the Real Odds, and What Goes Wrong

The iron condor strategy - options

One trade worked through in full, the win rate you actually need, and the 3 ways a quiet trade turns into a big loss

Published: 17 September 2026 · By Spencer Li, CFTe

An iron condor is an options trade that makes money when a stock stays inside a price range until expiry. You sell a call above the current price and a put below it, and buy a further-out call and put as protection. You collect a credit up front and keep all of it if the stock finishes between your 2 short strikes.

It is popular for one reason. It wins most of the time, because wide strikes leave the stock plenty of room, and unlike selling options with no protection, the bought options put a hard limit on what you can lose.

The catch is in the arithmetic. The most you can make is small, and the most you can lose is several times bigger. So an iron condor needs a high win rate just to break even, and a few bad weeks can erase months of small gains. Below is one trade worked in full, and a simple 3-part check.

A small, capped win; a loss several times bigger. Summary card for the post: Iron Condor Strategy: How It Works, the Real Odds, and What Goes Wrong.

How does an iron condor work?

An iron condor is 2 credit spreads at once, one on each side of the price. Here is a hypothetical example with round numbers.

A stock trades at USD 100, and you open 4 options that all expire next month:

  1. Sell a 110 call and buy a 115 call. This is the call spread above the price.
  2. Sell a 90 put and buy an 85 put. This is the put spread below the price.
  3. Collect a total credit of USD 1.50 a share, say 0.75 from each side.

Here is what happens at expiry, per share:

Stock price at expiryResult per shareWhat happened
85 or lower-3.50, the max lossThe put spread lost in full
88.500Lower breakeven
90 to 110+1.50, the max profitEvery option expires worthless
111.500Upper breakeven
115 or higher-3.50, the max lossThe call spread lost in full

The max profit is the credit, 1.50. The max loss is the width of one side, 5, minus the credit, which is 3.50. One contract covers 100 shares, so that is USD 150 at best and USD 350 at worst per condor.

Iron condor payoff at expiry: a wide flat small win between the 90 and 110 strikes, and a much deeper loss on either side
An iron condor’s win is small and capped, while its loss is several times bigger.

Only one side can lose in full, because the stock cannot finish above 115 and below 85 at the same time. Our post on sizing a credit spread by its max loss shows how to turn that 3.50 into a position size.

What is the real success rate of an iron condor?

This is the question people search most, and the honest answer has 2 halves.

The first half is the win rate. Pick strikes far enough away and the stock will finish inside the range most of the time, which is why condor results so often show 70%, 80% or more winners.

The second half is the break-even win rate. In the example, one full loss of 3.50 wipes out more than 2 full wins of 1.50. To break even with full wins and full losses, you need to win 3.50 out of every 5.00 at stake, which is 70% of the time. The wider your strikes, the higher your win rate, but the smaller your credit, and the higher the win rate you need. Both numbers climb together.

So a high win rate on its own says very little. A trader on an options forum who sold very far out-of-the-money spreads did this sum for himself, and concluded: “Seems like a zero sum game or even a negative sum game.”

Robert Carver, who ran money for a systematic hedge fund, gives a plain warning in Systematic Trading. If you make steady profits nearly every day and most trades win, he writes, “there is a good chance you are engaged in negative skew trading. It’s just that you haven’t yet seen any rare large losses.” Our post on selling options for income looks at why that pattern catches so many people.

What makes an iron condor lose money?

Three things, and only the first shows up on the payoff table.

1. A big move. A surprise earnings result, a central bank decision or a market sell-off can carry the stock past one of your short strikes in a day. The protection limits the damage. It is still the full 3.50.

2. Rising volatility. An iron condor is a bet that the stock will move less than the market expects, and in options terms it gains from time passing and loses when expected volatility rises. Our guide to the options Greeks explains theta and vega if those words are new. Even if the stock stays inside your range, a jump in fear can push the condor’s price up, and closing early then costs you.

3. Costs and fills. A condor has 4 legs, so you pay 4 commissions and cross 4 bid-ask spreads to open it, and again to close it early. On a trade where the most you can make is 1.50, every few cents matters.

There is also the fine print around expiry. US-listed stock options can be exercised before expiry, so a short leg deep in the money can be assigned early. And if the stock closes right at one of your short strikes on expiry day, you may not know until the next morning whether you hold the shares. The post on what happens when an option is assigned covers both in detail.

Very short condors that expire the same day have become popular, and they compress all of this into hours. The post on 0DTE options explains how that changes the risk.

If you want the daily routine for the trades we do teach, the free 15-Minute Swing Trader’s Checklist is at the end of this post. Get the free checklist →

How do experienced traders manage iron condors?

Most decide the exit first.

One trader on an options forum wrote in April 2026 that he had spent 12 years fighting the same problem: “one big loser wiping out all the small winners.” Defending and rolling the trade had not fixed it. What finally worked for him was a fixed rule: close the condor at half its max profit, or as soon as one short option moved close to the money. His win rate fell to around 60%, but his results became smoother, because no single loss could grow to the full width.

That is a fair point in favour of the strategy. A condor with a firm exit rule behaves quite differently from one left to run to expiry. It still does not change the shape of the trade. The wins stay small and fixed, and the losses still have to be kept small by you, every time, including on the day the market gaps through your stop.

A 3-part check before any iron condor

Here is a simple check that works for any condor, whatever the market:

  1. The range. Write down both breakevens. Then list every event before expiry that could move the stock past them, such as earnings, a dividend date or a central bank meeting.
  2. The ratio. Divide the max loss by the max profit. Work out the win rate you need to break even, and ask honestly whether your record beats it after costs.
  3. The exit rule. Decide the exit before you enter. Write down the profit target, the loss point, and the number of condors that would lose together if the whole market fell sharply in one day.

Size any trade like this by its max loss, never by the credit. The credit is the number you see, and the max loss is the number that decides whether you are still trading next year.

So, if your last 10 condors all won, how would you know whether you have an edge, or just have not met the bad week yet? And how many of your open trades would lose together if the market gapped 5% overnight? For the full picture of how options fit into a trading plan, see the guide to options trading.

FAQ

What is an iron condor in simple terms?

It is 4 options combined into one trade that profits if a stock stays between 2 prices until expiry. You collect a credit up front, and the 2 bought options limit how much you can lose.

What is the max loss on an iron condor?

It is the width of the wider spread minus the total credit collected. In the example above, that is 5.00 minus 1.50, or 3.50 a share.

What is the difference between an iron condor and an iron butterfly?

An iron butterfly sells both the call and the put at the same strike, usually at the current price. It collects a bigger credit, but the stock has to finish closer to that one price to keep it. An iron condor sells 2 different strikes, so it has a wider profit zone and a smaller credit.

What is the difference between an iron condor and a short strangle?

A short strangle sells the same call and put without buying the protective options. It collects more, but its possible loss on a big move has no fixed limit. The iron condor gives up some credit to limit the loss.

Does Synapse Trading teach iron condors?

No, we do not teach options at the moment. We teach end-of-day swing trading in shares, forex and ETFs, and the risk-per-trade sizing above works the same whichever product you use.

Go deeper

This post covers one corner of options. If you would rather start with what we do teach, the free 15-Minute Swing Trader’s Checklist has the daily routine, the questions to ask before every trade, and the five rules that protect your account.

About the author. Spencer Li is The 15-Minute Trader and the founder of Synapse Trading. He is a Certified Financial Technician (CFTe) with 15+ years of trading, run from 70+ countries. He holds a B.Acc and B.BM from SMU. Every trade he takes is public, dated, losses left in. He teaches rules-based swing trading in 15 minutes a day, one system for any market.

Educational content only, not personalised financial advice. Trading carries risk, including loss of capital. Past performance is not indicative of future results. Synapse Trading is not licensed or regulated by MAS.

by
Spencer Li

How to Choose the Best Options Broker in Singapore: 8 Checks Before You Fund the Account

Choose an options broker - options

Why options approval and fees feel so hard from Singapore, and the checks that tell you which broker fits you, with no broker named and no referral link.

Last updated: 15 October 2026 · By Spencer Li, CFTe

There is no single best options broker in Singapore, and I am not going to name one. The best broker for you is the one that passes 8 checks. It is licensed by MAS, and you know which company holds your money. It offers the markets and the approval level you need, at an all-in cost per contract you can see. It explains expiry and assignment in writing, its platform handles your orders, and you understand the US tax that comes with US-listed options.

Most of the “why is this so hard” comes from one MAS rule. Options are derivatives, and before a broker opens an account for you to trade listed derivatives, MAS requires it to review your “knowledge and experience in derivatives.” Many brokers then add their own approval levels on top. That is why the sign-up feels like an exam.

Do note that we do not teach options at Synapse Trading, and this post names no broker and carries no referral link. It sits under our ultimate guide to options trading, and it answers a question that turns up again and again on Singapore forums: which broker should I use for options, and why are the fees and approvals so hard?

Run 8 checks before you fund the account. Summary card for the post: How to Choose the Best Options Broker in Singapore: 8 Checks Before You Fund the Account.

Why is options approval so hard to get in Singapore?

Because there are 2 gates, and most people only expect one.

The first gate is the law. Under MAS Notice SFA 04-N12, any capital markets product outside a short list of simpler ones is a Specified Investment Product. Before a broker opens an account for you to trade a listed one, it must run a Customer Account Review, which the notice defines as “a review of a Customer’s knowledge and experience in derivatives.” Options are derivatives, so expect this review before an options account opens. You pass if you meet any one of these, from Annex 2 of the notice:

  • a diploma or higher in a field such as accountancy, business, economics or finance
  • a professional finance-related qualification
  • at least 6 trades in listed Specified Investment Products in the preceding 3 years
  • at least 3 consecutive years of relevant work experience in the past 10 years

If you meet none of them, MoneySense, the national financial education site, says you can also pass by completing the free SGX Online Education Programme module and its assessment. And if you still do not pass, the door is not shut. The notice says the broker must tell you the outcome in writing, get your written confirmation that you still want to go ahead, and explain the features and risks of derivatives to you. A lot of people take the first “you did not pass” email as a rejection, when it is the start of that process.

A pass does not last forever. Paragraph 16 of the notice stops the broker from letting you trade listed Specified Investment Products more than 3 years after your review, unless you traded them through that account more than once in the past 3 years, or you take a new review. US-listed options also count as overseas-listed products. Paragraphs 29D and 29E say the broker must give you a written risk warning, and get your acknowledgement, before your first such trade.

The second gate is the broker’s own. Many brokers sort options accounts into levels, each one unlocking riskier strategies. Covered calls and bought calls and puts usually sit near the bottom, spreads in the middle, and selling uncovered options at the top. Each broker sets its own rules for who gets which level. So you can clear the MAS review and still find that the strategy you wanted is locked.

A path through two gates: first the MAS review, then the broker's own approval level
Options approval has two gates: the MAS review first, then the broker’s own levels.

The 8 checks, in one table

I call this the fund-it-last checklist, because every line on it can be checked before a single dollar leaves your bank account, and almost none of it is easy to fix afterwards.

#The checkWhat to look forWhere to find it
1Licensed by MASThe exact company you sign with appears on the MAS registerMAS Financial Institutions Directory
2Who holds your moneyThe legal entity on your account agreement, and what protection applies to itThe account agreement and the client money disclosure
3The markets you wantUS-listed stock and ETF options, index options, or options on other exchangesThe broker’s product list
4Your approval levelWhich strategies each level allows, and how to move upThe options application and its FAQ
5The all-in costCommission per contract, exchange fees, currency conversion, market dataThe full fee schedule, not the headline page
6Expiry and assignmentWhat happens to an in-the-money option at expiry, and if you cannot pay for 100 sharesThe options terms and the margin policy
7The platformAn options chain with the Greeks, open interest and multi-leg ordersA demo or paper account
8Tax and paperworkThe US tax form, and what happens to dividends and estatesThe broker’s tax pages, then the IRS pages linked below

How do I check that a broker is licensed and my money is protected?

Start with the register. MAS keeps a public Financial Institutions Directory. Search for the exact company name on your account agreement, and check that it holds a capital markets services licence. Then search the MAS Investor Alert List for the same name. The scam checks in our post on how to choose a good forex broker apply here too.

The second half is where people get caught out. A broker group can run several companies in several countries, and the one holding your account decides which rules protect you. Singapore’s rules for licensed brokers have a whole part on customers’ money and assets, including how it is held in trust accounts. Ask the broker, in writing, which entity holds your cash and your positions, how the cash is held, and where.

Then there is the US scheme people quote in forums. SIPC protects customers of SIPC-member firms up to USD 500,000, “which includes a $250,000 limit for cash,” whatever country they live in, but only for accounts held at a SIPC member. An account held with a company that is not a SIPC member is outside it, so check which entity holds yours. And SIPC, in its own words, “does not protect against the decline in value of your securities.” Nothing protects you from a bad trade.

Why are options fees so hard to compare?

Because the price is spread across several lines, and most comparison pages only show 1. A share trade usually has one commission. An options trade can carry a commission per contract, a minimum per order, exchange and regulatory fees, and the spread you pay when Singapore dollars become US dollars. Some platforms also charge for live options prices, so the real cost only shows up after you have funded the account.

Here is the arithmetic that trips up small accounts, hypothetical and in round numbers. One contract covers 100 shares. An option quoted at 0.50 costs 50 US dollars before any fee. If the broker charges a per-order minimum, a 1-contract trade can pay several percent of the premium in fees, in and out, before the trade has done anything. A multi-leg order pays it on every leg.

So the useful number is the all-in cost of the trade you will actually place: a 1-contract trade and a 4-leg trade, every line on the fee schedule, plus the currency conversion.

What happens at expiry and assignment?

A bought option that finishes in the money is usually exercised for you at expiry, which means you suddenly own, or owe, 100 shares per contract. If you do not have the cash or the margin for that, the broker may close the position for you, at a price you did not choose. A sold option on a US stock can be assigned early, and a sold call assigned just before an ex-dividend date can leave you owing that dividend.

None of this is hidden, but it sits deep in the options terms. The expiry and assignment section should give 3 answers before you deposit: when exercise happens automatically, what the broker does if you cannot cover the shares, and when it will close positions on its own.

What about US tax and paperwork?

If you trade US-listed options from Singapore, the US tax system comes along.

Expect to be asked for Form W-8BEN, the IRS “Certificate of Foreign Status of Beneficial Owner”. The IRS tells a foreign person to give it to the withholding agent or payer, which for your US shares is usually the broker. On US-source dividends paid to non-residents, the IRS rule is to “withhold at 30% or lesser tax treaty rate.” Singapore does not appear on the IRS list of countries with a US income tax treaty, so the reduced treaty rate is not available to Singapore residents. An option pays no dividend. But an assigned option can leave you holding the shares, and the shares do.

Then there is the one people learn about late. For a non-resident who is not a US citizen, the IRS says the estate must file a US estate tax return “if the fair market value at death of the decedent’s U.S.-situated assets exceeds $60,000,” and those assets include “stock of corporations organized in or under U.S. law.” That threshold is low. This is general information, so check your own position with a tax professional.

Which broker should I use for options from Singapore?

The one that passes all 8 checks for the way you plan to trade, and only you can run that test.

Personally, I think the order matters more than the shortlist. The licence and money checks come first, because they protect you from the broker. The approval level and the cost come next, because they decide whether the strategy works at all. Expiry, the platform and tax come last, because they decide how painful your first mistake will be.

So which of the 8 can you already answer in writing, and which would you have found out the hard way?

If you would rather start with the part of trading we do teach, the free 15-Minute Swing Trader’s Checklist covers the questions to ask before every trade, whatever the market and whatever the broker.

FAQ

Can I trade options in Singapore?
Yes. Singapore residents can trade options through a broker licensed by MAS, once the broker has run the Customer Account Review that MAS requires for listed derivatives and approved your account for options.

What is the Customer Account Review?
The Customer Account Review is a check, required by MAS Notice SFA 04-N12, of your knowledge and experience in derivatives before a broker opens an account for you to trade listed Specified Investment Products. You pass by meeting one criterion, such as a relevant diploma, a finance qualification, 6 trades in the past 3 years, or 3 years of relevant work experience. If you meet none, you can still proceed after the broker explains the risks and you confirm in writing.

Is my money protected if my options broker fails?
It depends on which company holds your account and how it holds your money, so ask the broker in writing. SIPC protection applies only to accounts held at a SIPC-member firm. Nothing protects you from trading losses.

Do I pay US tax on options as a Singapore resident?
You may pay US withholding tax on dividends from US shares, at 30% for Singapore residents, which matters if an option is assigned and you end up holding the shares. US estate tax can also apply to US shares above USD 60,000. Check your own case with a tax professional.

Go deeper

This post covers the broker. If you would rather start with what we do teach, the free 15-Minute Swing Trader’s Checklist has the daily routine, the questions to ask before every trade, and the five rules that keep you in the game.

About the author. Spencer Li is The 15-Minute Trader and the founder of Synapse Trading. He is a Certified Financial Technician (CFTe) with 15+ years of trading, run from 70+ countries. He holds a B.Acc and B.BM from SMU. Every trade he takes is public, dated, losses left in. He teaches rules-based swing trading in 15 minutes a day, one system for any market.

Educational content only, not personalised financial advice. Trading carries risk, including loss of capital, and isn’t suitable for everyone. Past performance is not indicative of future results. Synapse Trading is not licensed or regulated by MAS.

by
Spencer Li

Trading in the Zone Summary: Mark Douglas on Thinking in Probabilities

Trading in the Zone, summarised - book summary

The four fears behind most trading errors, the five truths that remove them, and the 20-trade exercise that turns the theory into a habit

Published: 11 September 2026 · By Spencer Li, CFTe

What is Trading in the Zone about? Mark Douglas’s book argues that consistent trading results come from your beliefs and state of mind, and that more analysis will not fix them. He says plainly, “I do not offer a trading system.” He assumes you already have an edge and shows you why you do not trust it.

The core idea is that a trader must think in probabilities, the way a casino does. Douglas boils it down to five fundamental truths, starting with “Anything can happen.” Once you believe them, losses stop feeling like a threat, and the four fears behind most trading errors lose their grip. He finishes with a practical drill: trade your system exactly as designed for 20 trades in a row, sized so you could accept losing all 20.

Think in probabilities, the way a casino does. Summary card for the post: Trading in the Zone Summary: Mark Douglas on Thinking in Probabilities.

Who is Mark Douglas?

Mark Douglas started trading in 1978, while running an insurance agency outside Detroit. In 1981 he moved to Chicago as a broker at Merrill Lynch, and, in his own words, “within nine months of moving to Chicago, I had lost nearly everything I owned.”

That loss shaped the rest of his career. He wrote his first book, The Disciplined Trader, which took seven and a half years and came out in 1990. In 1983 he founded Trading Behavior Dynamics and spent the following decades coaching traders. Trading in the Zone was published in 2000.

I first read Douglas around 2008, through The Disciplined Trader.

What is the overview of Trading in the Zone?

The book runs in a clear order. Chapters 1 to 3 diagnose the errors traders make. Chapters 4 and 5 explain how the mind produces them. Chapter 6 describes what the market actually is. Chapters 7 and 8 give the five beliefs that fit it. Chapters 9 to 11 explain how to change a belief, and end with the drill.

Douglas’s first distinction is the one most traders skip. Everyone who places a trade takes risk. Almost nobody accepts it. He defines it precisely: “Accepting the risk means accepting the consequences of your trades without emotional discomfort or fear.” And he calls it “the most important skill you can learn.”

What are the four trading fears?

Douglas says that most of the errors traders make come from four fears: being wrong, losing money, missing out, and leaving money on the table.

The fearWhat it makes you do
Being wrongRefuse to take the loss, and look only for information that agrees with you
Losing moneyHesitate on a valid signal, or skip the setup altogether
Missing outJump in before the signal has actually formed
Leaving money on the tableTake profits too early, or never take them and let a winner turn into a loser

You will recognise at least one of these. And his point is that you cannot fix them with courage. “The best traders aren’t afraid.” They are not brave. They simply hold beliefs that leave nothing to fear.

What are the five fundamental truths?

This is the heart of the book. Douglas lists them in Chapter 7:

  1. Anything can happen.
  2. You don’t need to know what is going to happen next in order to make money.
  3. There is a random distribution between wins and losses for any given set of variables that define an edge.
  4. An edge is nothing more than an indication of a higher probability of one thing happening over another.
  5. Every moment in the market is unique.

The second truth is the one that changes how a loss feels. Douglas’s example is a system where, out of the next 20 trades, 12 will win and 8 will lose. You know the ratio. You do not know the order. So any single loss tells you almost nothing. As he puts it: “If your edge puts the odds in your favor, then every loss puts you that much closer to a win.”

Twenty trades in a grid: 12 wins and 8 losses scattered in a random order
You can know the ratio of wins to losses, but never their order.

The fifth truth is the cure for a trap every trader falls into. If you once called the market right, you start hunting for the same picture again, and when you find it, it feels certain. From the market’s side, it is a new moment with a new set of buyers and sellers.

Why does Douglas compare trading to a casino?

Because a casino makes steady profits on games with random outcomes. Douglas puts the blackjack edge at “approximately a 4.5-percent edge” over the player. The casino does not know who will win the next hand. It does not need to. It knows that over enough hands, the edge pays.

His summary of it is the most useful sentence in the book: “Events that have probable outcomes can produce consistent results, if you can get the odds in your favor and there is a large enough sample size.”

Now notice the two conditions. Odds in your favour, and a large enough sample. The casino only collects its edge because it plays every hand. A trader who skips the setups that scared them has broken the second condition, and is no longer running the same system. Our post on the law of large numbers in trading works through why the sample matters as much as the edge.

How do you put the book to work?

Douglas’s ideas turn into a routine in three steps.

  1. Edge. Define your setup with fixed rules, so you can tell in seconds whether it is present. Douglas warns that adding “other” information to the decision adds random variables to your results.
  2. Risk. Know the loss on every trade before you enter. Douglas sets the stop by the chart, never by comfort. He tells you not to “change your established risk parameters to satisfy your comfort levels.” If the loss feels too big, trade fewer shares. Our guide on where to put your stop loss and take profit shows how to place it on structure.
  3. Sample. Judge the system on 20 trades or more, never on the last one. Douglas says “a sample size of at least 20 trades fulfills both of these requirements”: large enough to test the edge, small enough to catch it if it stops working.

What is the 20-trade exercise?

The rule is short: “Trade your system exactly as you have designed it.” You commit to the next 20 occurrences of your edge, all of them, with no changes.

The sizing rule is what makes it survivable. Douglas says to set it up so “you can accept the risk (in dollar value) of losing on all 20 trades.” Do the sum in percent. Risk 1% of your account per trade, and 20 straight losses take you down about 18%. Risk 0.5%, and it is about 9.5%. Pick the number you could live with, and size from there.

The test is not profit. Douglas says you pass when you can get through a full sample of 20 without hesitation or second-guessing. The friction you feel along the way is the reading. It tells you which belief still argues with the five truths.

If you want a daily routine that keeps each trade small enough to accept, our free 15-Minute Swing Trader’s Checklist lays out the rules and the questions to ask before every entry. Get the free checklist →

What else is worth knowing from the book?

Rigid rules, flexible expectations. Douglas asks how a trader can be rigid and flexible at once. His answer: “We have to be rigid in our rules and flexible in our expectations.” The typical trader does the opposite. “He is flexible in his rules and rigid in his expectations.”

The danger of beginner’s luck. A new trader who starts with winners feels the carefree state of a professional “without having developed the attitude itself.” Early wins teach the wrong lesson, and the bill comes later.

The three kinds of trader. Douglas estimates consistent winners at “probably fewer than 10 percent,” consistent losers at “between 30 and 40 percent,” and the rest, “the remaining 40 to 50 percent,” as boom-and-bust traders who make money and then give it back in large losses.

When should you read Trading in the Zone?

Not first. A trader on Reddit put the book’s claim simply this year: “psychology (From Mark Douglas) matters more than predictions.” I agree, and I still tell people to wait.

As I wrote in my reading list: “Reading Mark Douglas before you have lost real money is like reading about heartbreak before your first relationship. The words are there, the meaning is not.”

So read the technical and risk books first, trade small for a while, then come back to Douglas. It ranks third in the ten books I would hand a beginner, on the condition that you read it after some live trades. The full list is in the best investing and trading books of all time.

Concluding thoughts

Trading in the Zone will not give you a setup. It gives you the reason you keep breaking the rules of the setup you already have. If you have ever moved a stop, skipped a valid signal, or cashed out a winner too early, the book names the fear behind it.

For a broader take on the three pillars of mind, method and money, read our summary of Trading for a Living. For the mindset habits we teach, see the trading psychology guide.

So here is Douglas’s test, in one line. Could you take your next 20 setups exactly as your rules say, without skipping one?

FAQ

What is the main idea of Trading in the Zone?

That consistent results come from thinking in probabilities. Douglas argues your beliefs, more than your analysis, decide whether you can follow your own rules.

What are Mark Douglas’s five fundamental truths?

Anything can happen. You don’t need to know what is going to happen next to make money. Wins and losses are randomly distributed for any edge. An edge is only a higher probability. Every moment in the market is unique.

Is Trading in the Zone good for beginners?

It is better after some live trading. The ideas land once you have felt the fears the book describes, so read it after a few months of small, real trades.

What is the 20-trade exercise?

You trade your system exactly as designed for the next 20 setups, with no changes, sized so you could accept losing all 20. You pass when you can do it without hesitation.

Go deeper

Douglas tells you to know your risk before every trade. The free 15-Minute Swing Trader’s Checklist shows you how: the daily scan, the questions to ask before you enter, and the five rules that keep you in the game.

About the author. Spencer Li is The 15-Minute Trader and the founder of Synapse Trading. He is a Certified Financial Technician (CFTe) with 15+ years of trading, run from 70+ countries. He holds a B.Acc and B.BM from SMU. Every trade he takes is public, dated, losses left in. He teaches rules-based swing trading in 15 minutes a day, one system for any market.

Educational content only, not personalised financial advice. Trading carries risk, including loss of capital. Past performance is not indicative of future results. Synapse Trading is not licensed or regulated by MAS.

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Spencer Li

One Up on Wall Street Summary: Peter Lynch’s Six Categories and Stock Checklist

Peter Lynch's six categories - book summary

How Lynch found stocks in everyday life, sorted them into six types, and checked the story before he bought, plus where his method and a trader’s part ways

Published: 11 September 2026 · By Spencer Li, CFTe

What is One Up on Wall Street about? Peter Lynch’s book argues that an ordinary investor can beat professionals by buying companies they already understand from daily life, often before Wall Street notices them. His first rule is blunt: “Stop listening to professionals!”

The method has three parts. Notice a company doing well in your own world. Put it into one of six categories, from slow growers to fast growers to turnarounds, so you know what kind of story you are buying. Then check the story against the numbers before you invest. Lynch also lists the 13 traits of a “perfect stock”, the stocks he avoids, and how he decides when to sell. This summary walks through each one.

Notice it, name it, then check the numbers. Summary card for the post: One Up on Wall Street Summary: Peter Lynch's Six Categories and Stock Checklist.

Who is Peter Lynch?

Peter Lynch ran Fidelity’s Magellan fund. In the book, he writes that during the twelve years he managed it, the fund “has risen over twentyfold per share.” One Up on Wall Street was first published in 1989.

His voice is the reason the book still sells. He writes like a neighbour explaining stocks over the fence, with doughnuts and motels instead of formulas.

A note on sources: this summary is drawn from an authorised summary of the book, published by permission of Simon & Schuster. Quotes are as printed there.

What is the overview of the book?

The book has three parts. Part I is about getting ready to invest: why amateurs have an edge, and whether you should be in stocks at all. Part II is about picking winners: the six categories, the perfect stock and the ones to avoid. Part III is the long view: how many stocks to own, and when to buy and sell.

Lynch’s edge for the amateur is simple. He found Taco Bell through a burrito on a trip, La Quinta Motor Inns through a tip at a rival motel, and Dunkin’ Donuts because he loved the coffee. You see these things long before an analyst writes about them.

A reader on Reddit put the same idea this year, about chains like Chipotle and Starbucks: “These companies didn’t just suddenly appear everywhere overnight, right?”

Is the stock market gambling?

Lynch faces this head on. “To me, an investment is simply a gamble in which you’ve managed to tilt the odds in your favor.”

And he does not need to be right all the time. “If six out of ten perform as expected, then I’m thankful. Six out of ten is all it takes to produce an enviable record on Wall Street.”

Before you buy a single share, he asks three personal questions. Do you own a house? Do you need the money? And do you have the qualities it takes, such as patience, humility and the willingness to admit mistakes? On the money question his rule is clear: “Only invest what you could afford to lose without that loss having any effect on your daily life in the foreseeable future.”

What are Peter Lynch’s six categories of stocks?

This is the core of the book. Once Lynch finds a company, he places it in one of six categories, because each one behaves differently and needs a different plan.

CategoryWhat it isWhat to check
Slow growersLarge, ageing companies growing a little faster than the economyThe dividend, and whether it has always been paid
StalwartsBig, solid companies that protect you in hard timesThe P/E ratio, so you do not overpay
Fast growersSmall, aggressive firms growing “at 20 to 25 percent a year”Whether growth is speeding up or slowing, and room to expand
CyclicalsCompanies whose profits rise and fall with the business cycleInventories and the early signs of a turn
TurnaroundsBattered companies that could recoverCash, debt, and whether they can survive their creditors
Asset playsCompanies sitting on something valuable the market has missedThe real value of the assets, and the debt against them

Fast growers are where Lynch finds his “10- to 40-baggers”. A tenbagger, in his words, is “a stock in which you’ve made ten times your money.” He is just as clear about the other end: “big companies don’t have big stock moves.”

How does Lynch’s method work?

Here is the method as three steps.

  1. Notice. Start with what you already see at work, in shops and at home. Lynch says the average person comes across “a likely prospect two or three times a year.”
  2. Name. Put the company into one of the six categories. “If you can’t figure out what category your stocks are in, then ask your broker.” Each category sets what you expect and when you would sell.
  3. Check. Treat the tip like “an anonymous and intriguing tip, mysteriously shoved into your mailbox.” Read the numbers before you buy. “Investing without research is like playing stud poker and never looking at the cards.”

The checking does not take long. Lynch says that developing the story “at most it will take a couple of hours.” For a faster first pass, our checklist before buying a stock asks 7 questions in 60 seconds.

Peter Lynch's method in three steps: notice a company, name its category out of six, then check the numbers
Notice a company in daily life, name its category, then check the numbers before buying.

What makes a perfect stock, and which stocks should you avoid?

Lynch lists 13 traits of his ideal company. A few of them stand out. It sounds dull, “or, Even Better, Ridiculous.” It does something dull or disagreeable. It is a spinoff. Institutions do not own it and analysts do not follow it. It has a niche. People have to keep buying what it makes. Insiders are buying, and the company is buying back its own shares.

Then the stocks he avoids. The hottest stock in the hottest industry. Any company touted as “the next” famous success. Companies that waste profits on bad acquisitions, which he calls “diworseifications”. The whisper stock with a whiz-bang story and no earnings. A supplier that sells 25 to 50 percent of its goods to a single customer. And a stock with an exciting name.

The whisper stock sounds a lot like penny-stock hype today. Lynch’s answer is to wait. If the prospects are that good, it will still be a fine investment next year, once the company has proven itself.

How many stocks should you own, and when do you sell?

Lynch says that in small portfolios he would “be comfortable owning between three and ten stocks.” More stocks raise the chance that one becomes a tenbagger. If you want to see how that compares with a sizing rule for each position, our guide on how much of your portfolio to put in one stock works through it.

On selling, he goes category by category. Sell a slow grower after a 30 to 50 percent gain, or when the fundamentals slip. Sell a cyclical near the end of the cycle, when inventories build. With a fast grower, “the trick is not to lose the potential tenbagger,” so you watch for the end of the second phase of rapid growth.

Where does Lynch’s method differ from swing trading?

Here is the honest contrast. Lynch writes: “If you can’t convince yourself ‘When I’m down 25 percent, I’m a buyer’ and banish forever the fatal thought ‘When I’m down 25 percent, I’m a seller,’ then you’ll never make a decent profit in stocks.”

That is an investor’s rule. He buys a business after research, expects to hold it for years, and treats a falling price as a discount on a company he understands. A swing trader works on a different clock. We set the exit before the trade, and a stop-loss closes the position when the chart says we are wrong. Our post on averaging down explains why adding to a loser is a different decision for a trader than for a long-term owner.

Both approaches share one idea that Lynch puts best: “A stock does not know that you own it.” Your purchase price means nothing to the market. And his warning on cheap shares fits any style: “If a stock goes to zero, you lose just as much money whether you bought it at $50, $25, $5, or $2.”

If you want the trader’s version of a buying checklist, with the exit set before you enter, our free 15-Minute Swing Trader’s Checklist lays it out. Get the free checklist →

Concluding thoughts

One Up on Wall Street is the friendliest entry to stock picking I know, which is why it sits at number nine in the ten books on my reading list for beginners. It teaches you to look at a company as a business with a story, and to check that story before you pay for it.

If you want the deeper theory of value behind it, read our summary of The Intelligent Investor. For a rules-only version that ranks stocks on 2 numbers, see Joel Greenblatt’s magic formula. For how stock picks fit into a whole portfolio, see the DIY guide to building your investment portfolio, and for the full shelf, the best investing and trading books of all time.

So look around you this week. Which company have you noticed doing well, long before you heard anyone talk about its stock?

FAQ

What is the main idea of One Up on Wall Street?

That ordinary investors can beat professionals by buying companies they understand from everyday life, then checking the numbers before Wall Street notices them.

What are Peter Lynch’s six categories of stocks?

Slow growers, stalwarts, fast growers, cyclicals, turnarounds and asset plays. Each behaves differently, so each needs its own plan for buying and selling.

What is a tenbagger?

Lynch’s term for a stock in which you have made ten times your money. He says fast growers are where most tenbaggers come from.

Does Peter Lynch say to buy what you know?

He says to start there, then do the research. A company you notice in daily life is a lead, not a buy signal, until you have checked its numbers.

How many stocks did Peter Lynch recommend owning?

For a small portfolio, he says he would be comfortable with between three and ten stocks.

Go deeper

Lynch checks the story before he buys. The free 15-Minute Swing Trader’s Checklist does the same for traders: the daily scan, the questions to ask before you enter, and the five rules that keep you in the game.

About the author. Spencer Li is The 15-Minute Trader and the founder of Synapse Trading. He is a Certified Financial Technician (CFTe) with 15+ years of trading, run from 70+ countries. He holds a B.Acc and B.BM from SMU. Every trade he takes is public, dated, losses left in. He teaches rules-based swing trading in 15 minutes a day, one system for any market.

Educational content only, not personalised financial advice. Trading carries risk, including loss of capital. Past performance is not indicative of future results. Synapse Trading is not licensed or regulated by MAS.

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