Trading Lesson of the Week

• September 12, 2023

In This Week’s Issue:

• Upcoming Stockscores Events – October
• Market Outlook – September Weakness?
• This Week’s Market Minutes video – Stock Market Crash Survival Plan
• Trader Training – The Less You Know, the Better

Upcoming Stockscores Events – October

Would you like to learn how to manage your retirement savings better? Ever thought about being a part or full time stock trader? Our October Events will take a deeper dive into how the Stockscores approach to investing and trading can bring you profits in the stock market. Free to attend, live so you can ask Tyler questions and every registrant will receive a free electronic copy of Tyler’s book, The Mindless Investor.

Go here to learn more.

https://www.stockscores.com/trader-training/upcoming-events/

Market Outlook –September Weakness?

The large cap stocks are looking a bit toppy as some of the high-flying tech stocks start to succumb to profit taking. September is notorious for being a weak month before the strong season for stocks from October to May. While there has not been a strong signal that the market is heading lower yet, I do think caution warranted over the next few weeks.

This Week’s Market Minutes video – Stock Market Crash Survival Plan

Are you worried about a stock market crash? This week, I show a simple technique to protect your portfolio against a crash while still enjoying the stock market’s upside. Then, my analysis of the overall market and a look at the trade of the week on AXLA.

https://youtu.be/WqgPDI6cr9w

Click here to watch this week’s video

Trader Education – The Less You Know, the Better

Suppose you are given a set of strategy rules by an expert trader who has found that the strategy makes $500 a trade when it is right and loses $200 a trade when it is wrong. The trader assures you that the strategy has been profitable 70% of the time.

You start trading the strategy, and, after making 100 trades, you find that the expert trader was right; it was profitable 70 times, making you an average profit of $500 each time and losing you an average of $200 thirty times. Over the 100 trades, you made $29,000 (70 × $500 − 30 × $200).

As you move into your next 100 trades, you find a stock that meets all the criteria of the strategy that the expert trader gave you. You move in and buy the stock, following the rules of the strategy. Later that day, you are discussing the trade with your neighbor, who tells you that she actually works for that company and that you have made a great trade because the company has big results coming. It turns out that the company is in the mining business and is exploring for gold in the Nevada desert. It has had excellent preliminary results, and she thinks it is going to be a sure thing. She tells you how everyone in her office is buying the shares because they know how great an opportunity it is.

You know the market agrees with her because your new system gave you an entry signal. You read up on the company a little more and find out that the company management has a great track record for finding viable gold mines; they have done it three times before. You also discover a website that has an analysis of the preliminary results by an independent geologist who does not work for the company, and he has put a strong buy rating on the stock with a $10 target. You already bought today at $5.

Although the rules of your expert's system limit position sizes, you decide to buy more. Breaking the rule at this point seems reasonable given the information you have, especially since people that work at the company are buying too.

You are surprised when, three days later, the stock price falls and hits the stop loss point defined by your system. This is the point where you were supposed to take a $200 loss, but because you bought a lot more of the stock you are faced with a $1000 loss. You decide to stick with the trade after your tipster neighbor tells you to expect results the following day. It feels good to have some inside information.

Results do come out the following day, but they are not what you expected. The company did not find gold, and the venture is a bust. The stock drops to $2 a share. Your loss has now ballooned to $15,000.

This single loss represents the profits of 30 winning trades in your system. What should have been a $200 loss grew to 75 times that, all because you broke the rules of your proven strategy. Your neighbour feels bad for giving you the tip, but she has her own problems: she had invested every penny of her savings into the stock and is now faced with a huge loss too.