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Ditch the Crystal Ball: Why "Thinking in Bets" is Your Stock Market Superpower

In the volatile world of the stock market, we often crave certainty. We want to know for sure if a stock will go up, if our strategy will work, or if this is the absolute bottom. But as Annie Duke brilliantly argues in "Thinking in Bets," this quest for certainty is a fool's errand. Instead, she champions a mindset that's uncomfortable for many: embrace uncertainty and think probabilistically.

This isn't just a philosophical nicety; it's a fundamental shift in how successful traders and investors operate.

The Illusion of Certainty

Our brains are wired to create coherent narratives and seek definitive answers. When it comes to something as complex as the stock market, this innate desire for certainty can be incredibly misleading. No one knows the future, and yet we constantly try to predict it with absolute conviction. This leads to:

• Overconfidence: Believing we know more than we do, leading to oversized positions or ignoring warning signs.
• Rigidity: Sticking to a trading plan or an investment thesis long after new evidence suggests it's flawed, simply because we were "sure."
• Emotional Swings: Getting excessively excited by a win (thinking we're geniuses) or devastated by a loss (thinking we're failures), instead of understanding the role of probabilities.

Thinking Probabilistically: Your Edge in the Market

Embracing uncertainty means acknowledging that every decision you make in the market is a "bet" with a range of possible outcomes, each with an associated likelihood. It's about shifting your mindset from "will this stock go up?" to "what's the probability this stock will go up, and by how much, versus the probability it will go down, and by how much?"

Here’s how to integrate this powerful approach into your stock market trading:

1. Quantify Your Confidence, Not Just Your Opinion: Instead of saying, "I think this stock will go up," try to assign a probability: "Given my analysis, I'd say there's a 60% chance this stock goes up 10% in the next three months, and a 40% chance it goes down 5%." This forces you to consider alternatives and quantify your conviction.
2. Focus on Expected Value: Every trade has an expected value, which is the sum of all possible outcomes multiplied by their probabilities. Acknowledge that a single bet might not pay off, but over many trades, if you consistently make decisions with positive expected value, you'll come out ahead. This removes the sting of individual losses and encourages adherence to your strategy.
3. Use Ranges, Not Point Estimates: Instead of predicting a stock will hit exactly $100, think in ranges: "$90-$110 with a high probability." This reflects the inherent fuzziness of future events and allows for greater flexibility.
4. Scenario Planning and Contingencies: What happens if your 60% probability doesn't pan out? By thinking probabilistically, you naturally start asking "what if?" questions and developing contingency plans. What's your exit strategy if the stock goes against you? How much can you afford to lose on this specific bet? This builds resilience into your trading.
5. Separate Luck from Skill: When you think probabilistically, you can better differentiate between good outcomes that were due to luck (a low probability event going your way) and good outcomes that were due to skill (making a high probability bet). This helps you learn from your successes and failures without the distorting effect of "resulting."

The stock market is a game of probabilities, not certainties. By ditching the crystal ball and adopting a probabilistic mindset, you can make more rational, less emotional decisions, better manage risk, and ultimately improve your long-term trading performance. It's about understanding the odds, playing them wisely, and accepting that sometimes, even with the best hand, you might still lose a pot.

Recent Trade Review

Last week in the Dynamic Power Trader (DPT) Live Trading Room, we focused on a trade in Invesco QQQ Trust (QQQ), the ETF that tracks the Nasdaq-100 and is heavily influenced by large-cap technology stocks.

During the session, the DPT model identified QQQ as a short opportunity as momentum in the tech sector began to weaken and the setup offered an attractive risk-to-reward profile.

This trade also highlights an important distinction between our free and paid services. While free content provides general market insights, paid members receive real-time SMS alerts with precise entry and exit signals so they can act quickly while the opportunity is active.

If you’d like to see the trade analysis and execution step-by-step, you can watch the full Live Trading Room session here:

Live Trading Room Recording

Current Trading Landscape

Markets spent the week recalibrating as geopolitical shocks collided with an already fragile macro environment. The dominant theme remains familiar: interest rates staying higher for longer while global liquidity is no longer expanding meaningfully.

Major indices avoided a full breakdown but clearly lost momentum. The S&P 500 hovered near its 50-day moving average, reflecting hesitation rather than conviction. Technology stocks led the decline, pushing the Nasdaq to the largest weekly loss, while the Dow held up somewhat better thanks to strength in energy and industrial names.

Volatility increased but remained orderly. The VIX briefly spiked above 25 before settling near 22, signaling elevated caution rather than systemic stress. Meanwhile, the 10-year Treasury yield continued swinging within its 3.6%–4.35% range, which has become the key fulcrum for equity valuations. When yields approach the upper end of that range, growth multiples compress; when they ease, risk appetite improves.

The week’s defining catalyst arrived before markets opened Monday. U.S. and Israeli strikes targeting Iranian sites escalated tensions in the Middle East, damaging nuclear-related facilities and killing senior IRGC commanders. Iran quickly vowed retaliation, raising fears of broader regional conflict and potential disruption to oil flows through the Strait of Hormuz.

Markets reacted immediately. S&P 500 futures fell roughly 2% and Nasdaq futures nearly 3%, while investors rushed toward safe-haven assets. Oil surged as traders priced in potential supply disruptions, with WTI crude briefly spiking as much as 13% intraday, while gold hit new highs and Treasury yields initially declined.

Although fears of immediate retaliation eased by mid-week, preventing a broader escalation, the episode injected a geopolitical risk premium into global markets and set the tone for a volatile trading environment.

Energy quickly became the focal point. Even after Monday’s spike moderated, crude remained elevated, with Brent briefly reaching the mid-$80 range, its highest level since 2024. Higher oil prices revived concerns that inflation could reaccelerate just as the Federal Reserve remains reluctant to ease policy.

Energy stocks rallied accordingly, with several producers and oil-services companies gaining 4–8% during the week. The broader market, however, viewed the oil surge more cautiously. Rising energy costs reinforce inflation risks and strengthen expectations that the Fed will keep policy restrictive for longer. That dynamic pushed Treasury yields higher mid-week and pressured rate-sensitive growth stocks, particularly technology.

After Monday’s sharp selloff, markets attempted to stabilize. As fears of immediate Iranian retaliation faded and the Strait of Hormuz remained open, dip-buyers and short covering emerged Tuesday and Wednesday, helping the S&P 500 and Dow recover part of their early losses.

However, the rebound lacked conviction. Intraday swings of 1–2% became common, reflecting a market struggling to determine whether geopolitical tensions would escalate or fade. By late week, renewed headlines and profit-taking reintroduced selling pressure, leaving the major indices lower overall.

Beyond geopolitics, macro data continued reinforcing the higher-for-longer interest-rate narrative. The ISM Services PMI came in softer than expected, hinting at modest cooling in economic momentum, while jobless claims remained low, underscoring labor-market resilience.

Federal Reserve officials reinforced the same message. Chair Jerome Powell and New York Fed President John Williams emphasized that policy decisions will remain data-dependent, making clear that meaningful rate cuts require sustained progress on inflation. Markets interpreted the comments as confirmation that easing is unlikely in the near term, especially if energy-driven inflation pressures persist.

Liquidity trends added another layer of caution. The Fed’s latest balance-sheet update confirmed that quantitative tightening continues, meaning liquidity is gradually being removed from the financial system rather than expanded. At the same time, global capital-flow data suggests foreign demand for U.S. Treasuries may be softening, which could place upward pressure on yields if sustained.

Across global markets, financial conditions remain tight. European lending data, Japanese capital flows, and Australian investment trends all point to cautious positioning. In short, global liquidity is stabilizing at best—not accelerating—leaving markets increasingly dependent on earnings and internal fundamentals.

Corporate earnings continue to show resilience, though leadership is narrowing. NVIDIA’s results reinforced strong demand for artificial-intelligence infrastructure, though profit-taking followed as investors reassessed valuations in a higher-rate environment.

Elsewhere, Salesforce signaled steady enterprise software demand, while consumer trends appeared more uneven. TJX benefited from value-oriented shoppers, whereas Lowe’s highlighted continued caution in discretionary home-improvement spending. Energy companies also benefited from the week’s macro backdrop as higher oil prices reinforced capital discipline across the sector.

The broader takeaway is that earnings remain supportive for equities overall, but leadership is narrowing toward companies with strong balance sheets, durable cash flow, and pricing power.

Despite the volatility, market behavior continues to reflect rotation rather than panic selling. Investors are becoming more selective, favoring companies with consistent earnings durability and free-cash-flow strength rather than speculative growth narratives.

Inflation expectations have also edged higher in recent surveys, reinforcing sensitivity to interest rates. Markets appear to be transitioning from the liquidity-driven enthusiasm that defined earlier phases of the cycle toward a more fundamentals-driven environment.

Looking ahead, the coming week brings a heavy slate of economic data that could influence Federal Reserve expectations. Reports on construction spending, ISM manufacturing, ADP employment, jobless claims, trade data, and Friday’s employment report will provide additional insight into economic momentum and labor-market conditions.

Corporate earnings will remain in focus as well. Hewlett Packard Enterprise, Oracle, and Adobe are scheduled to report, offering further clues about enterprise technology spending, while recent results from Broadcom continue shaping sentiment around the semiconductor sector.

Markets will also remain highly sensitive to any developments in the Middle East, particularly signs of escalation or de-escalation.

From a technical perspective, the broader market structure remains intact even as momentum weakens. SPY continues to hold key support in the 650–660 range, which should act as an important floor over the coming months. If yields stabilize and earnings remain supportive, the rally could still extend toward the 700–720 range over time.

However, the near-term path may remain uneven. The primary risk facing markets is the combination of persistently high interest rates and early signs of weakening labor conditions. If unemployment begins to rise while borrowing costs remain elevated, the Federal Reserve’s policy flexibility could narrow quickly.

For now, the most appropriate stance remains market-neutral, recognizing that long-term structural trends remain constructive even as short-term momentum deteriorates.

Markets are entering a phase where fundamentals matter more than liquidity. In this environment, broad index exposure may become less effective than selective positioning in companies with durable earnings power and financial strength.

Put simply, this is increasingly a stock picker’s market, and risk management should remain at the forefront as investors navigate a landscape defined by higher interest rates, geopolitical uncertainty, and more selective capital flows.

Sector Spotlight

Every week, markets quietly reveal where capital feels most comfortable hiding—and where it believes opportunity may be emerging. In a tape defined by geopolitical uncertainty, rising oil prices, and persistent questions around inflation, investors have begun gravitating toward a corner of the market that historically performs best when volatility increases and macro risks rise.

This rotation has not happened loudly. It has unfolded gradually beneath the surface as institutional money searches for sectors that benefit from the same forces currently unsettling broader markets. When geopolitical tensions flare and inflation expectations creep higher, certain industries move from being cyclical participants to strategic beneficiaries.

This week’s developments reinforced that shift. The escalation of military strikes involving Iran injected a geopolitical risk premium into global markets, immediately pushing crude prices sharply higher. Even after the initial spike cooled, oil remained elevated, with Brent crude briefly touching levels not seen since 2024. At the same time, markets continued grappling with the Federal Reserve’s higher-for-longer stance, meaning sectors sensitive to rising interest rates, particularly technology and long-duration growth stocks, faced renewed pressure.

In this environment, investors naturally rotate toward industries that benefit from higher commodity prices, generate strong free cash flow, and offer tangible asset exposure rather than purely financial growth narratives.

That search leads directly to the energy sector, particularly the Energy Select Sector SPDR Fund ($XLE).

Energy has quietly become one of the few sectors aligned with the current macro backdrop. Elevated crude prices translate directly into stronger revenue visibility for producers and refiners, while disciplined capital spending across the industry has improved balance sheets and shareholder returns through dividends and buybacks.

Psychology plays a major role here. When markets become uncertain, investors often shift from speculative growth toward companies tied to real-world demand and physical assets. Energy fits that description perfectly. It offers exposure to global supply constraints, geopolitical dynamics, and persistent energy demand—all factors currently driving market headlines.

The result is a subtle but powerful rotation. While broader indices struggle to find direction near key technical levels, capital continues migrating toward sectors with clear macro tailwinds. In the current environment of geopolitical risk, inflation sensitivity, and cautious monetary policy, $XLE stands out as one of the most strategically positioned sectors in the market right now.

Trade of the Week – Valero Energy ($VLO)

Within that broader sector rotation, one name stands out as particularly well positioned to benefit from the current macro landscape: Valero Energy ($VLO).

Valero is one of the largest independent petroleum refiners in the world, operating an extensive network of refining facilities that convert crude oil into gasoline, diesel, and other essential fuels. Unlike pure exploration and production companies, refiners like Valero profit not only from higher energy demand but also from refining margins, which tend to expand when volatility disrupts global supply chains.

This week’s market environment plays directly into that strength.

The geopolitical escalation involving Iran pushed oil prices sharply higher early in the week, reminding markets how fragile global supply dynamics can be. Even as the immediate panic eased, crude remained elevated and energy stocks continued to attract capital. As discussed in the Current Trading Landscape, this dynamic helped drive a rotation into the energy sector while technology and other rate-sensitive growth stocks lagged.

Refiners often thrive in precisely this kind of environment. Supply disruptions, transportation bottlenecks, and shifts in global trade flows frequently lead to tighter refined product markets—conditions that support stronger margins for companies like Valero.

From a technical standpoint, $VLO has also shown relative strength compared with the broader market, holding firm while major indices drifted lower near their 50-day moving averages. That type of relative resilience is often one of the earliest signals that institutional money is accumulating a stock.

There is also a psychological component at work. When markets transition from liquidity-driven rallies to more selective, fundamentals-driven leadership—as we are seeing now—investors tend to favor companies with strong cash flow, tangible assets, and clear earnings visibility. Valero checks each of those boxes.

The combination of elevated oil prices, geopolitical risk, and capital rotating into the energy sector creates a favorable backdrop for the stock. For those reasons, Valero Energy ($VLO) is the symbol I will be adding to my portfolio this week.

The broader lesson ties directly back to this week’s market behavior. As liquidity conditions tighten and macro uncertainty rises, investors increasingly reward companies positioned to benefit from real-world supply dynamics rather than purely financial narratives.

That shift reinforces the broader takeaway from this week’s market action: this is becoming a stock-picker’s market, and identifying sectors with structural tailwinds—like energy—and companies with strong operational leverage to those trends can create compelling opportunities even in a volatile environment.

This week, I’ll add Valero Energy ($VLO) to my portfolio!

And one more thing! Our track record speaks for itself from the standpoint of a Winning Trades Percentage, Average Return Per Trade, and Net Gain. Just take a look:

The consistent performance of our services is just incredible. My historical stellar performance is made possible by being right on 82.46% of all trades that I made, with an average profit of 39.48% per trade on our collective trade recommendations. To my knowledge, this trading performance is one-of-a-kind and stands alone in the marketplace for superior trading advice, where our numbers and results speak for themselves.

As we step into 2026, shifting market conditions make this an ideal moment to reevaluate your trading approach and position your portfolio for the opportunities ahead. Explore the full suite of tools and services at www.yellowtunnel.com and choose the trading system that aligns with your goals for the new year. Powered by advanced AI and built for today’s fast‑moving markets, YellowTunnel helps you cut through noise, sharpen your strategy, and pursue stronger, more consistent performance in 2026.

Whether you’re focused on real-time trade opportunities, advanced analysis, or developing a disciplined trading mindset, we’ve got the tools and insights to guide you. As the year unfolds, let's work together to make 2025 the most profitable year for your portfolio. But remember—successful investing starts with informed decisions. Always conduct thorough research and assess your risk tolerance before executing any trades.

Let’s make this year a transformative one for your financial growth!

One more thing, I've had the opportunity to take additional action with a great organization supporting families in Ukraine directly. Gate.org is a foundation where fundraising is held for specific families, allocating funds to multiple families currently living in Ukraine. I am on the board of directors for this great initiative and encourage everyone to check it out and donate if possible. The war in Ukraine is escalating, and families are being negatively impacted and displaced daily. To learn more about this initiative to help families, please see the link below:

 www.gate.org

Wishing you a week filled with resilience, growth, and prosperous opportunities!