Trading Lesson of the Week

• December 4, 2022

In This Week’s Issue:

• Tyler on the Desire to Trade Podcast
• Market Outlook – Is the Market Going Higher?
• This Week’s Market Minutes video – Should Investors Use Stops?
• What’s Working Now – The Alpha Echo strategy
• Trader Training – From Weak Markets Comes Strength

Tyler on Desire to Trade Podcast

“In episode 379 of the Desire To Trade Podcast, we will be listening to the recording of an interview with Tyler Bollhorn, a full-time trader who went from $3000 to $500k. Tyler talks about his journey, when he started, and how he grew into a full-time trader. The video is also available for you to watch on YouTube.”

Click Here to Watch

https://youtu.be/JAbGtd8rj2o        

Market Outlook – Is the Market Going Higher?

We have seen good gains for the stock market over the past few weeks and that has improved psychology and the number of opportunities are increasing. Cannabis stocks are one of the leader groups in the market and we are also seeing improvement in Small Caps, Precious Metals and some life in Energy. The market is at a critical point right now as it tests the weekly downward trend line. A break through that will be a positive sign for 2023.

This Week’s Market Minutes video - SHOULD INVESTORS USE STOP LOSS ORDERS?

Good risk management is important for successful investing but are stop losses orders the right way to do it? This week I show an approach to using stops, provide my analysis of the markets and look at the day trade of the week on CHC.

Click here to watch

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What’s Working Now

I am finding the new Alpha Echo strategy is generating good trades. This strategy seeks to buy pullbacks on stocks that were abnormal and positive in the past two weeks. It is the second wave of a recently hot stock and generates swing trades that can last a few days or weeks. Great strategy for those who can watch the market casually through the day but who don’t want to be glued to the screen as a day trader.

Trader Training – From Weak Markets Comes Strength

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.