How Money Clouds Your Trading Decisions
Stockscores Foundation for the week ending January 31, 2022
In this week's issue:
In This Week’s Issue:
- Tyler Bollhorn at the World Outlook Conference (online event)
- Stockscores Market Minutes Video – Stock Market Crash Trading Strategies
- Stockscores Trader Training – How Money Clouds Your Trading Decisions
- Stockscores Strategy – Crash Reversals
World Outlook Conference
I will be on a panel discussing my outlook for the market and what to look for in 2022 during the online World Outlook Conference next week. Here is some information on the conference and link to Register:
“Since 1990 our goal at the World Outlook Financial Conference is to protect you financially, help you thrive by understanding the major trends, and introduce you to quality investment opportunities. The track record makes clear we’ve done a great job. Join us for the event broadcast Feb 4th & 5th, 2022 or via on-demand video on your own schedule – all from the comfort of your living room - and in your pajamas if you’d like!”
~ Michael Campbell, Founder & Host
The 2022 World Outlook Financial Conference gives Canadian retail investors access to some of the English-speaking world’s top independent market analysts, experts normally unavailable to individual investors. Big picture macro-economic forecasters like Martin Armstrong, Greg Weldon and James Thorne. Small cap portfolio builders and fund managers such as Ryan Irvine and Paul Beattie. Market timers Mark Leibovit and Don Vialoux. Energy market experts Eric Nuttall and Josef Schachter, technology investor Brent Holliday, Ozzie Jurock on Real Estate, Victor Adair on Commodities and much more.
In addition, Conference attendees can hear from industry leaders regarding investment opportunities in Precious Metals, Real Estate, Oil & Gas, Wealth Management, Commodities and more. As a special bonus the 2022 Conference will be highlighting the latest developments in FinTech, Cryptocurrency and Decentralized Finance – a sector poised to enter the mainstream. Over 50 high quality HD video presentations in all.
For more information on the Feb 4th & 5th agenda and speakers, or to purchase passes go to https://mikesmoneytalks.ca/world-outlook-conference-2022/
Stockscores Market Minutes – Stock Market Crash Trading Strategies
With the stock market crash well under way, what are some strategies to make profits when most investors are losing? This week, I show three things you can do to profit during times of weakness. Plus, I provide my analysis of the stock, currency, interest rate and commodity markets, look at the day trade of the week on NI and run a Market Scan to find opportunities from the stock market crash.
Click here to watch this week's Market Minutes video
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Commentary of the Week – Money Clouds Your Trading Decisions
“Anything worth doing is worth doing for money” – Gordon Gecko, Wall Street
It is generally accepted that money is a motivator; if you link pay to performance, performance will improve. For that reason, many people's salaries vary with their performance. This is most prevalent on Wall Street where bankers and traders receive most of their compensation in the form of incentive-based pay.
In his book, "Drive", Dan Pink considers whether pay for performance really works. Does dangling a carrot and threatening with a stick cause people to deliver better results? The research finds that this is not always the case.
For very mechanical tasks, incentive-based pay does work. A brick layer who is paid by the brick will work more effectively than one who is paid by the hour. However, for tasks that require analytical thinking, performance is actually worse when it is linked to pay.
Pink cites research involving the solving of puzzles. The person who was told she would receive a financial reward if she solved the puzzle in the shortest time performed worse than a person who had no potential for financial reward if the puzzle was solved quickly. The person who was solving the puzzle for the sake of solving the puzzle did it quickest.
I have been teaching people how to trade the stock market for over twenty years, teaching a lot of people from many different backgrounds. One constant that I have seen is those who perform the best as traders are those who don't care about the money. They trade with a set of rules and the discipline to follow the rules, making the money irrelevant.
The market is a puzzle that we want to solve. Why does a focus on money make us ineffective traders, or puzzle solvers?
I am not a behavioral scientist and I have not done the kind of research necessary to really answer that question. However, I do have an opinion based on what I have learned from trading.
Money causes us to focus on something that is irrelevant to the problem. In doing so, it complicates the puzzle, making it more difficult to solve.
If we aspire to make money from the market, we should change our focus to find trading opportunities with a positive expected value. Money will be the determinant of success, but it will not be something that is part of the problem to be solved.
Suppose you buy a stock and it is showing you a profit of $1000. It is near to the end of the month and you need $1000 to pay bills. There is a good chance you will sell the stock because of your need, regardless of what your analysis would tell you about the stock's potential to move higher.
Money causes a greater problem to our trading when it comes to taking losses. A stock may remain a good hold despite the fact it is showing as a loss. The size of the loss often causes traders to exit the trade simply because the money, and the potential loss of more, causes them too much concern.
Not only can money bring an irrelevant condition in to our problem-solving equation, it also tends to bring emotion which hurts our ability to make good decisions. Most people function poorly under stress and the fear of losing money brings stress. When we focus on the money, we trade with emotion and that means we make bad trades.
Every trader must overcome their emotional attachment to money. Trades must be based solely on the merit of the trade. Our pursuit must be on doing the right trade, doing good analysis. If we trade to make money, we will lose it! Our chances for success improve when we simply trade to solve the market's puzzle.
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This week I ran the Crash Reversals strategy Market Scan that I discussed in this week's Market Minutes video. I focused the scan on the Canadian market. While I think it is still early in a potential turnaround and most stocks do not yet fit the requirements of the strategy, here are two that have potential.
T.WELL is breaking its daily chart downward trend line day after forming a rising bottom last week. Support at $3.95.
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T.HMMJ is an ETF of Cannabis producers. The Cannabis sector is one of the worst performers of 2021 but a number of these stocks are showing early signs of bottoming. Support at $4.95.
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