Trading Lesson of the Week

• June 30, 2024
• SGHT | HSHP

In This Week’s Issue:

• Market Outlook – Is a Summer Rally Coming?
• This Week’s Market Minutes video – GME and NVDA, Is It Time to Buy?
• Trader Training – 9 Tactics to be a Better Trader
• Strategy – Pullback Play

Market Outlook – Is a Summer Rally Coming?

Most years, we get a period of gains in the summer, which has been creatively called the summer rally. Last year, it started mid-June and went for a month. No strength so far this year but the broader market started to show some strength last week. I expect that a move to the upside will depend on the market starting to expect an interest rate reduction from the US Fed. Watching the US Treasury Bond market ETF (TBT) for a move to the upside is a good way to see what the market anticipates from the US Central Bank. Strength in the IWM is a good indication of broader market strength, unlike strength in the S&P500 or Nasdaq 100 which have been pulled higher by the strength in a small number of very large cap tech stocks.

This Week’s Market Minutes Video – GME and NVDA, Is It Time to Buy?

Is it time to buy GME (Gamestop) or NVDA (Nvidia)? They are two high profile stocks that attract a lot of retail trading interest, but with recent weakness, many are concerned that they are more likely to go down than up. This week, I provide my analysis of these stocks and show what to watch for in the days and weeks ahead. Plus, my analysis of the stock, commodity, crypto and bond markets before the trade of the week on ASNS.

Click here to watch this week's video

https://youtu.be/inNIr73waK8

Commentary – 9 Tactics to be a Better Trader

Here is a list of priorities that I think are essential to becoming a successful stock trader:

Find Alpha. These are the stocks that are moving on their own story, with less correlation to the overall market. There will be a different list of Alpha stocks every day but they are characterized by abnormal price and volume activity. These attract the crowd, the crowd brings the emotion, emotion causes a break down in market efficiency and that creates opportunity.

Overcome Yourself. Humans are predisposed to fail in the stock market because we have an emotional attachment to money. That clouds our judgment and makes us do irrational things. Computers have been programmed to take advantage of those emotions. To be successful, you have to learn to overcome yourself.

Trade Positive Expected Value. Your trading strategy should be based on logic based rules that can be tested over a large sample size. That testing should show that the strategy makes money consistently through varied market conditions. Just as the odds favor the casino, your strategy should have odds that favor you. Otherwise, you are just the gambler on the wrong side of the table.

Define Your Process. A great strategy is useless if you don’t have the process in place to find and execute the trades before the opportunity is gone. It is not about buying or shorting the right stock. It is about buying or shorting the right stock at the right time. With a sound process, even the best strategy will fail.

Have Optimism. You are what you think. If you are negative then you will get negative results. With optimism, you can overcome the hard times and find your path to trading success. Optimism does not mean recklessness, for that is the way of the gambler who seeks fast riches without the hard work.

Work Hard. Once your trading strategy is defined and your emotions under control, trading is not that difficult. However, getting to that point takes hard work, discipline and perseverance. Many aspiring traders fail because they give up.

Focus. The market can change direction very quickly. If you are not focused, you can miss opportunities or quickly watch a good trade turn in to a bad one. When you are trading, trade.

Have a Plan. Without a well thought out and tested trading plan, you will succumb to your emotions when trading gets difficult. The plan should be concise enough for a computer to follow. Don’t leave room for judgment because your judgment will be clouded when you risk your capital.

Have an Edge. You are competing against millions of other traders. To win, you have to have an edge. That could be better information, a better strategy, better technology, better emotional control or anything else you can find that most people don’t have.

Trade well.