Traders Must Seek the Truth
Stockscores Foundation for the week ending May 13, 2019
In this week's issue:
In This Week’s Issue:
- Stockscores’ Market Minutes Video – Stock Market Correction - Is It Time to Panic?
- Stockscores Trader Training – Traders Must Seek the Truth
- Stock Features of the Week – Trading Volatility
Stockscores Market Minutes – Stock Market Correction - Is it Time to Panic?
Recent volatility has investors concerned that a stock market correction is imminent, so I address the question, is it time to panic?
Then I provide my weekly market analysis, do a Market Scan in search of trading opportunities and look at the trade of the week on WKHS.
Click here to watch this week's Market Minutes video
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Commentary of the Week – Seek the Truth
My brother lives in Belgrade, he works there as a teacher. I typically communicate with him by text message and last did so a few days ago. He was out walking his dogs and sent me a picture which he titled, “the oldest tree in Europe.”
This begs the question, why would he send me such a picture with such useless information?
To understand you must know that my family has a long history of providing trivial information to others, almost always unsolicited. We see something we think is interesting and we are eager to share it. No good reason for it, just something we like to do.
My first response, looking at the tree in the photo which did not strike me as looking particularly old, was to question how they know it is the oldest tree in Europe.
His response, “I don’t know but there is a plaque below the tree which says so”.
Therefore, it must be true.
I quickly did a Google search for “oldest tree in Europe” and found that according to the Internet, which is renowned for its truth, the oldest tree in Europe is actually in Italy.
That post was probably written by the head of tourism in Italy.
I advised him of my findings, which I think he appreciated. After all, the truth will set you free.
“If anyone can refute me – show me I’m making a mistake or looking at things from the wrong perspective – I’ll gladly change. It’s the truth I’m after, and the truth never harmed anyone.” – Marcus Aurelius
The lesson as it applies to trading and investing is an important one. We are inundated with countless facts, rumors and speculations about companies and the market in general every day. Few of them are ever proven to be actually true.
I base every trade that I make on the facts as I see them at that moment. I also make a point of establishing what would have to happen to prove me wrong. I am constantly looking for a reason to change my mind.
This does not come naturally. It is hard to be wrong because it usually means taking a loss. However, I am not worried about taking losses, I am motivated to not take big losses. The small ones are part of trading.
In trading, it is important to establish the criteria for being wrong before you are faced with the prospect of having to lock in a loss. Losses are painful and we humans are wired to avoid pain. When the fear of pain is rising, our rational brains turn off and our fight or flight mechanism takes over. We no longer think clearly.
A good way to overcome this is to write down the reasons why you are taking a trade but also include the things that would prove you wrong. This could be as simple as establishing a support price for the stock which, if broken, would mean the entry signal that you followed is no longer valid. What is important is that you write it down so you have something to go to when you are not thinking rationally.
Then you just have to heed your own advice.
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In this week's Market Minutes video, recorded on Sunday, I said that the upward trend line on the daily chart for the overall market has not yet been broken. Therefore, best to stay calm regarding a market correction.
Today, the market gapped down at the open and if we close at the levels that the market is at as I write this, we will have broken the upward trend line. This is a cue to be defensive with stocks and trade volatility as it is likely that there will be more to come.
One of the easiest ways to do this is to trade the VXX, UVXY or TVIX exchange traded notes. These will tend to go up when the market moves down sharply.
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