This Trading Law Beats Common Sense
Stockscores Foundation for the week ending July 21, 2026
In this week's issue:
In This Week’s Issue:
- Birthday Special
- Market Outlook – Action Picking Up
- This Week’s Market Minutes video – This Trading Mistake Cost Me Last Week
- Trader Training – This Trading Law Beats Common Sense
- Strategy – Stockscores Simple
My Birthday Special
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- Use 500ITA26 at checkout for $500 off of the Investor course
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Market Outlook – Action Picking Up
The first two weeks of July were pretty slow for traders. While the indexes held up quite well, volume was very light and there were not as many stocks making big moves as we normally see. However, that has changed this week with a few stocks making big moves and creating new optimism. This could set up for a summer rally, or at least some improved short term trading action.
Oil has shown increased volatility but it somewhat difficult to predict as it reacts to headlines. Short term traders can take advantage of the volatility but the longer term outlook is uncertain. Better for traders than investors.
Gold is starting to stabilize as it has retraced down to its long term upward trend line of support. Still no sign of buyer enthusiasm but worth watching for a bounce.
This Week’s Market Minutes Video – This Trading Mistake Cost Me Last Week
I made a mistake trading last week that cost me missed profits. This week, I explain this simple mistake that most traders make, and the importance of avoiding it. Plus, my analysis of the markets and whether we are at a risk for a market correction. Finally, the trade of the week on SOBR.
CLICK HERE TO VIEW ON YOUTUBE
https://youtu.be/AFuV5XVImro
Commentary – The Trading Law Beats Common Sense
Today, CPHI moved from $1 to $19.
OMH climbed from $0.25 to $1.20.
VIVK ran from $1.65 to $9.60.
Yesterday, ZYBT went from $0.60 to $12.
Each of these extraordinary moves happened within a single trading day.
To the reasonably intelligent and rational observer, there can be only one conclusion:
“It makes no sense.”
That conclusion may be correct, but it is not necessarily profitable.
Trying to make sense of every move in the market can cause traders to miss valuable short-term opportunities. A trader who believes markets must always be rational, orderly and closely connected to business fundamentals will often ignore stocks like these.
They may be right that the companies are not worth their suddenly inflated market values. However, a short-term trader is not necessarily trying to determine what a company should be worth several years from now.
The trader is trying to profit from what buyers and sellers are doing today.
The Market Does Not Have to Be Rational
Price movement is created by the balance between supply and demand.
When aggressive buyers overwhelm the available supply of shares, the price rises. That rising price attracts attention, appearing on market scanners, social-media feeds and lists of the day’s largest percentage gainers.
The attention brings in more buyers.
As the stock rises, traders who previously ignored it begin to fear that they are missing an exceptional opportunity. The increasing price becomes evidence, at least in their minds, that the stock is worth buying.
The move begins to feed on itself.
This is why a stock can sometimes attract more buyers at $8 than it did at $1. A higher price would normally be expected to reduce demand. In a speculative market, however, a rapidly rising price can have the opposite effect.
The Law of Upticks
Legendary Canadian stock promoter Murray Pezim referred to this behaviour as the law of upticks.
The idea is simple: buyers often become more emotional and more willing to chase a stock as its price rises. Demand increases not because the company has become significantly more valuable, but because the rising price creates excitement, attention and greed.
A stock trading quietly at $1 attracts little interest.
At $2, traders begin to notice it.
At $4, momentum scanners identify it.
At $8, fear of missing out takes over.
People who would not buy the stock at $1 suddenly feel compelled to own it at a much higher price.
Logically, that behaviour makes little sense.
Emotionally, it makes perfect sense.
Charles Mackay described this tendency in Extraordinary Popular Delusions and the Madness of Crowds:
“Men, it has been well said, think in herds.”
The market continually demonstrates that people are strongly influenced by the actions of others. When a crowd is making money, standing aside becomes increasingly difficult. The higher the stock goes, the more convincing the move appears.
This emotional demand can push prices far beyond any reasonable assessment of value.
Do Not Confuse a Bubble With a Bad Trade
These stocks may be bubbles. In fact, some may have already collapsed by the time you read this.
However, does the trader who bought at $2 and sold at $5 care that the stock was a bubble?
Of course not.
The only traders who care are those who bought too late, refused to take a profit or continued to hold after the momentum had disappeared.
Calling a stock overvalued does not mean it cannot go higher. A stock that makes no sense at $3 can become even more irrational at $6, $10 or $15.
A trader who shorts solely because a stock appears expensive can suffer a devastating loss. A trader who refuses to buy solely because the move appears irrational may miss a strong opportunity.
The lesson is not that traders should blindly chase every rapidly rising stock. The lesson is that strength should not be dismissed simply because it cannot be logically explained.
Price action reflects what market participants are actually doing. Opinions about valuation reflect what we think they should be doing.
In the short term, actual behaviour matters more.
Never Doubt Strength—But Never Trust It
While traders should not automatically doubt strength, they must also never assume that strength is sustainable.
The same crowd that drives a stock rapidly higher can disappear without warning. When buying slows, early traders begin taking profits. As the price falls, confidence changes to fear. Those who chased the stock near the top rush to get out.
The law of upticks can quickly become the law of downticks.
That is why a good momentum trader needs both an entry strategy and an exit strategy. The exit is often more important.
Before entering a trade, the trader should know:
- What abnormal price action will trigger the entry.
- Where the protective stop will be placed.
- How much capital will be at risk.
- What conditions justify taking a profit.
- What evidence will show that momentum has failed.
Without these rules, momentum trading becomes gambling.
Buying a rapidly rising stock is not the strategy. The strategy is identifying strength early, controlling risk and exiting before the crowd recognizes that the move is over.
Stay One Step Ahead of the Crowd
Successful momentum trading requires a trader to participate in the crowd’s behaviour without becoming emotionally absorbed by it.
You must understand why traders chase strength, but you cannot allow greed to control your decisions. You must be willing to buy a stock that appears irrational, while remaining disciplined enough to sell it when the price action weakens.
That balance is difficult.
Enter too early and there may not yet be enough momentum.
Enter too late and you may become the person left holding the bag.
Exit too early and you sacrifice much of the opportunity.
Exit too late and a large paper profit can turn into a loss.
The goal is not to predict the exact top. It is to capture a reasonable portion of the move while the odds remain favourable.
The market does not reward traders for having the most rational explanation. It rewards those who correctly interpret price action, manage risk and act decisively.
Common sense may tell you that a stock rising from $1 to $19 in one day is absurd.
The law of upticks explains why it can happen.
A disciplined trading strategy determines whether you profit from it.
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This week, I ran the Stockscores Simple Market Scan in search of stocks with good chart patterns for longer term trades. Here are two charts that I like:
1. GREEGREE is breaking through resistance that goes back to the start of 2025 and has started to build upward momentum. Support at $1.60.
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2. BULLBULL is breaking out from an ascending triangle pattern that has been building over the past three months. Good turnaround chart as long as support at $6.75 holds.
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