Be Fearless. Are the sellers still in control?
Stockscores Foundation for the week ending September 20, 2022
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In this week's issue:
In This Week’s Issue:
- Market Outlook – Sellers Still Have Their Grip …
- What’s Working Now – Day Trader’s Have Opportunities Daily
- Trader Training – Be a Fearless Trader
- Trade Ideas – Food for Thought
The sellers remain in control after a failed attempt at breaking the downward trend line on the daily chart of the major market indexes. The focus is on Wednesday’s FOMC meeting where it is expected that there will be another aggressive raise of interest rates to combat inflation. More important will be comments on the future direction for US monetary policy.
Rising US interest rates continue to drive the US$ higher. It is now in a parabolic shaped upward trend which makes it due for a pullback, but there is no sign of weakness.
The strong US$ hurts commodity prices and we have seen Gold break down. However, the Ukraine conflict is driving some Agricultural commodities higher, something that could flow through to food inflation.
Conditions may change after Wednesday’s FOMC announcement if investors change their view on the future of interest rates.
For a video version of my market analysis, be sure to watch this week’s Market Minutes video, How to Make Money in a Weak Stock Market. This week, I share the two main ways to make money during a stock market crash. Plus, my analysis of the stock, commodity, currency and interest rate markets. The day trade of the week is on AAOI
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What’s Working Now
Short term trading of Alpha stocks, characterized by abnormal price and volume and strong liquidity is about the only thing worth doing on the buy side for stocks. The high price volatility in the overall market makes swing trading the liquid Exchange Traded Funds something to consider for those who have the capital base to take larger positions.
My swing and position trading ideas are provided with the Tradescores Alerts subscription
My day trading ideas are provided with the Active Live subscription
Trader Training – Be a Fearless Trader
Speaking from experience, I have found that most mistakes in trading are the result of succumbing to fear. When I say mistakes, I do not mean losses since losing money on some trades is part of trading. Instead, I mean those bad trades that we all take which do not fit in to our trading strategy and plan.
The fear-based decisions that cause us to deviate from our trading rules can be broken down in to two types.
First, the trading decisions that we make because of our fear of losing money. These are usually exit trades; we sell too early for fear that our winner will turn in to a loser. Perhaps we fail to take a trade that fits our criteria because our "common sense" tells us there is something wrong with the trade and that it can't succeed. Maybe we enter a trade later than we should because we want to see the market prove our trading idea correct, only to end up getting in once much of the run has happened.
The second fear-based trading mistakes we make are those that are the result of our fear of missing out. These tend to be on the entry; we take trades that don't quite fit our rules because we focus on what might be, the profits that could happen. It may be that we listen to an "expert" in the media or follow the actions of the crowd and do what the headlines are telling us to do.
Have you ever succumbed to either of these fear-based trading mistakes?
If you are a normal human being, I think it is highly unlikely that you have not. Since they happen to all of us, we need to figure out a solution. Fortunately, the solution is quite simple.
Rather than focus on fear, focus on fact. Make trades based on what is happening, not what you think could happen.
Many have described fear as "future events appearing real". We don't walk down a dark alley at night because we might get mugged. We don't swim in the ocean because we might get attacked by a shark. We don't fly on a plane because it might crash.
When we focus on what might happen, what our fear tells us to do, we typically ignore probability. The probability of getting attacked by a shark is extremely low. Last year, you had a greater chance of dying taking a selfie photograph than by being attacked by a shark. If we focus on fact, we get better results.
This does not mean you should ignore fear. It is there to protect us and, when probability is on the side of the decision, it is best to listen to fear. I stopped flying small airplanes because the statistics showed that it was a dangerous thing to do. I still trade stocks because I have strategies that put the statistics in my favor.
When you trade, take your focus off your emotion and look at the facts. Develop a trading strategy that puts probability for profit in your favor. Have a process in place to assess the facts and take the trades that meet your requirements. Overcome fear in favor of fact.
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When I started trading (a long long time ago!) I was focused on trading Futures. Commodities trading had a lot of volatility and traders were granted more leverage than in stocks so it worked well when I was overly enthusiastic but under funded.
Today you can trade commodities in the stock market through Exchange Traded Funds. There is an ETF for almost every commodity and it is easy and low cost to move in and out of them as trends change.
This week, two Agriculture ETFs that are showing some strength and could see some short term gains.
WEAT was on a strong upward move earlier this year, mostly as a result of Russia's invasion of Ukraine. In recent months it has pulled back to its linear upward trend line and is now starting to move up again.
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CORN has also come alive in the past few weeks. The chart is not as strong as that of WEAT because Corn has been rising for the past 6 weeks already but there is still more upside until it hits resistance at $30.
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