Trading Lesson of the Week

Check back weekly for another free trading lesson:

There is Strength in Market Weakness

In This Week’s Issue:

  • Stockscores’ Market Minutes Video – Is This Stock Market Correction Part 2?
  • Stockscores Trader Training – There is Strength in Market Weakness
  • Stock Features of the Week – Weekly Breakouts

 

Stockscores Market Minutes – Is this Stock Market Correction Part 2?

Markets are showing signs that there may be more weakness ahead. This week, I tell you what to watch for, discuss the importance of maintaining your focus when trading, give you a couple of stocks to consider for next week and look at a recent day trade in the trade of the week on AMD.

Click here to watch on YouTube

To get instant updates when I upload a new video, subscribe to the  Stockscores YouTube Channel

 

Commentary of the Week – There is Strength in Market Weakness

Simple approaches to any practice usually work the best. Finding the simple solution is not always easy, doing so can take the most experience. This is true in trading too and one simple concept to keep in mind when trading stocks is that there is strength in weakness (and weakness in strength).

What do you do when you are optimistic about a stock? Assuming you invest in stocks at all, you probably buy. When you are pessimistic, there is a good chance you sell.

Suppose there are 100 people who can trade the stock market and approach the market in this rational way.

If 30 of them are optimistic about the market and 70 are pessimistic then there are 30 potential buyers and 70 likely sellers. The sellers are stronger and will likely push the market lower.

What happens when a pessimist sells or an optimist buys? The seller no longer has shares to sell and becomes a person who is more likely to buy in the future. The buyer now has shares and is a more likely seller in the future.

If most people in the market are optimistic, they are also likely owners of the market and less likely to buy in the future. The more optimistic the market, the more likely people will sell in the future.

If most people in the market are pessimistic, they have likely already sold and are therefore likely to be future buyers as prices fall.

Market strength is driven by optimism that is likely to turn to pessimism once prices get high enough. Market weakness is driven by pessimism that will eventually turn to optimism once prices get low enough.

That is why weakness brings strength, and strength brings weakness.

Keep this in mind when analyzing a stock. It is why I don't like to chase stocks that have been going up for a while. I prefer to buy just when stocks start to go up. I also like to sell just when upward trends are broken rather than sell after a stock has been going down for a while.

You can apply this thinking with a very simple chart analysis method. Use trendlines to define who is in control of the market and then look for a change of control. A downward trend means the sellers are in control so watch for a break of the downward trend to indicate the buyers are going to come in off of the sidelines and turn the market around.

There is strength in weakness as long as you get the timing right.

Get the weekly email from Stockscores founder Tyler Bollhorn

Get our weekly trading lesson and stock trading ideas direct to your email in box with the Stockscores Foundation newsletter.

Learn how to be a better investor and trader plus see how to best utilize the tools of Stockscores.com.

This is a free service from Stockscores with no spam (we hate spam!). Enter your email address below to register for future email editions and see the archive of past newsletters.

Past Trading Lessons

December 9, 2018There is Strength in Market WeaknessT.ABX | RWM
December 2, 2018Keep Your Standards UpT.AC | T.GIL
November 25, 2018Beat Fear, Beat the MarketTYME | BIOS
November 18, 2018When the Unexpected Happens, Trade!KOOL | SQQQ
November 4, 2018Recent Stockscores VideosMARA | CNCE
October 28, 2018The Early Years of Trading
October 21, 2018How To Read Stock Charts
October 14, 2018The Behavioral Science of TradingFLKS | GLBS
October 7, 2018Market Scanning for Hot StocksPEIX | BDSI
September 30, 2018Overcoming EmotionsAKER | ETP
September 24, 2018How to Be a Good TraderGLBS | BAS
September 17, 2018Trading Small Cap StocksRNN | AVP | SMSI
September 9, 2018Big Data, Big ProfitV.EMC | FRED
September 4, 2018Profits from WithinAVID | RARX
August 26, 2018Take Your Eyes Off the PrizeCRBP | GS
August 20, 2018Emotion is the EnemyTOL
August 13, 2018TradenomicsT.EFX | T.SW | T.CPX
August 5, 20185 Ways to Overcome EmotionBLNK | MRAM
July 22, 2018The Information TrapT.HCG | XRAY
July 16, 2018Fear or Fact?TLGT | GOL
July 8, 2018What the Ocean Teaches Us About InvestingMCF | DEPO
June 24, 2018Learn from My Trading MistakesAKTX | ZFGN
June 18, 2018Effective Strategy TestingT.NEPT | BLPH | CLSN
June 18, 2018Effective Strategy TestingT.NEPT | BLPH | CLSN
June 10, 2018Trade With Fact or Fear?APRI | BLCM
June 3, 20187 Important Trading TechniquesSTNG | GIGM
May 28, 2018The Expected Value of the TradeSVRA
May 20, 20188 Mistakes of the HeartASNA | CTIC
May 13, 2018Stop Fear in Your Trade Decision MakingT.AUP | T.WEED | TYME
May 6, 2018Trading Should Not Be GamblingCRNT | BPY
April 29, 201815 Core Trading Principles
April 22, 2018How to Measure Your Trading Performance
April 15, 2018Do You Gamble or Trade?T.MOGO | ZIXI
April 9, 201810 Ways to be a Better InvestorHAL | XOM
April 2, 2018Be the Fussy TraderT.HXD | VXX | SDS
March 25, 2018How to Be a Better TraderV.GENE | V.HEMP
March 18, 2018Trade Stocks for a Living - What You NeedNFEC | RKDA | AMTX
March 11, 2018Don't Be a Reckless TraderVVUS | YRD
March 4, 2018Seven Ways to Take Emotion Out of TradingV.PQE | ARLZ | UPLD
February 25, 2018Trading Success with StatisticsACHN | T.THO
February 18, 201810 Ways to be a Better InvestorSTKS | CTG
February 12, 2018Never Fall In Love, Is the Stock Market Crash Over?AQMS | UAA
February 4, 2018Here are 7 Reasons to Say No to the TradeVXX
January 28, 2018Does Size Matter?VXX
January 21, 20183 Ways to Improve Your Trading ProfitsLTRX | NVCN
January 7, 2018Trade Less, Make MoreHEB | NIHD | V.SLL
December 23, 20178 Trading Resolutions for 2018
December 10, 2017Trading a CorrectionBUR | BCRX
December 3, 2017Strength Brings WeaknessROX | ETSY
November 26, 2017Up 27% in 4 Months, How the Big Wins Pay the ProfitsV.KALY | GLOW