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- Free Lunch Trade - 2024/25
Free Lunch Trade - 2024/25
Time for some dumpster diving.
Nick Tomas
December 23, 2024 • Estimated Reading Time: 7 minutes
Table of Contents
Legendary economist, Milton Friedman, is known for saying “There’s no such thing as a free lunch.” While the creator of modern portfolio theory, Harry Markowitz, is credited with the stating, “Diversification is the only free lunch in investing.”
The markets say that both might be off the mark. Well... maybe not completely wrong, but close enough to create opportunities for savvy traders to profit. And right now happens to be the perfect time of year to capitalize on those quick moves.
What it is:
The "Free Lunch Trade" is a yearly opportunity to take advantage of oversold bounces in the market's biggest under-performers of the year. Consisting of stocks which hit new 52-week lows in December.
It's crucial to remember that these companies are struggling for valid reasons, so when a bounce happens, it’s usually wise to take your profits and move on. Could some of these stocks be at their bottom? Possibly. But let them prove their worth first. Until there’s a solid catalyst, these aren’t likely candidates for long-term investments.
For most people, it’s best to observe how these plays unfold, especially if you’re not experienced with trading. But if trading is a skill you wish to learn and hone, then you want to know about this yearly trade and how it operates.
Why it happens.
It’s an opportunity which comes about after “tax loss harvesting” at the end of the year.
aka: Selling for tax loss purposes.
Who is credited with its discovery.
To the best of my knowledge, Stock Trader’s Almanac is where the Free Lunch Trade originated. Which is why I will once again recommend it to anyone that is the least bit interested in trading/investing.
How to Safely Place Your Bet(s)
**Quick note on how to determine the amount of shares to purchase:
To determine the amount of shares which you want to purchase, first determine the amount in which you would be comfortable to lose. Part of trading and investing is losing. Show me someone with a 100% win rate and I will show you a psychotic liar. Even championship teams lose a few games a year, and so do the best traders of all time.
Once you have determined the amount you would be comfortable with losing, subtract your entry price from your stop loss and then divide the amount of loss you are willing to take by the price difference between your entry and stop loss. That will give you the amount of shares to purchase.
Free Lunch Set-ups
Due to the market action from this past week, I was considering holding off on posting about the Free Lunch Trade and it’s set ups. The reason is that the Free Lunch Trade is an opportunity to do some dumpster diving for a shorter term bounce. However, now there are a lot of better opportunities in better companies due to the recent sell off. There’s a time and a place for everything.
With that being said, here are some set ups based on the Free Lunch Trade which have my attention:
DOW
ENVX
WBA
VAL
DVN
CVS
BYON
ENPH
NAT
OXY
KOS
JNJ
NUE
Hey. What can I say?!? Shooters shoot, ballers ball, players play, and traders trade.
You do you, but keep in mind it’s a trickier environment than it has been the past several weeks.
Any questions, let me know.
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Click the Leave a comment button if you have any questions or comments, or need something clarified. Don’t be shy. The main point here is to improve constantly. Questions and comments help us both and tells me what you are interested in learning/hearing more about.
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