Trading Lesson of the Week

• August 18, 2024
• ALZN | APDN | SOND

In This Week’s Issue:

• Market Outlook – Improved Trading Action
• This Week’s Market Minutes video – Are Tech Stocks Going Higher or Lower Next? NVDA, AAPL and GOOGL
• Trader Training – 3 Ways to be a Better Trader
• Strategy – Alpha Stocks

Market Outlook – Recession vs Interest Rates

The market is focused on a battle between the potential for a recession and the future direction of interest rates. The concern over inflation caused the market to move sharply lower two weeks ago and expectations of an interest rate drop in September has brought the market back up. The volatility creates opportunity and I have noticed an improvement in trading action over the past two weeks with quite a few stocks making big price moves. However, these are more for the short term trader to take advantage of. Longer term traders should focus on sectors that are strong, like Gold mining, as the momentu is up.

This Week’s Market Minutes Video – Are Tech Stocks Going Higher or Lower Next? NVDA, AAPL and GOOGL

Tech stocks like NVDA, AAPL and GOOGL went up a lot, then corrected substantially before bouncing back this week. What's next for these stocks? I will show you simple ways to analyze any stock and what to watch for on these. Plus, my analysis of the stock, commodity, currency and bond markets and the trade of the week on CING. Click here to watch

https://youtu.be/J1-Bfp2ABfY?si=QDSP8uVFDH85gL2v

Commentary – 3 Ways to be a Better Trader

I think many traders have a hard time believing they can make money by buying a stock and waiting. Most of us are not taught to make our money work for us but instead that we must work for our money. Go to a job, put in the time and you get a paycheck. Work hard, and your paychecks will grow. But the thought that you can make money by putting your feet up is a difficult thing to grasp.

With that mental programming, most of us have difficulty holding on to our strong stocks and letting the profits grow. If we buy a stock at $1 and it goes up to $1.20 in a couple of days, we are likely to sell. In some ways we think of this fast return as good luck, not much different than buying a winning lottery ticket. We have a fear that someone is going to figure out that we have benefited from a mistake, and so we better get out now before we get discovered.

This thinking is strengthened when we take a trade that's less than ideal and it goes down as quickly as it went up. If we take a marginal trade we should expect marginal results, but somehow we only remember the negative feeling of watching a paper profit turn into a loss. We tell ourselves that next time we will sell at the first sign of weakness and crystallize the gain. Avoiding pain is human nature.

Our next trade is of higher quality, but we sell it on a short-term weakness and lock in a quick but relatively small profit. While lost in self-congratulations we realize that someone named Murphy is writing the laws of trading, and we watch the stock march ever higher with us eating the stock's dust. We have jumped off a high-speed bus that is headed for Profit City.

What is behind this destructive behavior? It's that deep-rooted emotional response to danger that keeps us out of trouble but also makes us avoid a greater feeling of fulfilment.

Fear is what makes us sell our winners too early and hold our losers too long.

The best traders are not afraid of holding on to strong stocks, they are afraid of holding on to losing stocks. What do you do when you trade?

If you are a normal human being, you do the opposite of what the pros do. Think about the last loser that you owned. As the stock fell lower and lower, what was it that you told yourself over and over?

"It'll bounce back eventually. I'll just be patient."

What your subconscious mind was really saying was, "It's much too painful to sell this loser and see that loss of my hard-earned capital. I'll hold on with the hope that it goes back to what I paid for it and then I'll sell." And of course, it continued lower because there was something wrong with the company and it deserved to go lower.

What can we do to fight our destructive minds? How can we program ourselves to hold on to our winners and dump the losers? How can we trade without fear? Here are three of my seven criteria for fearless trading:

Only Trade Quality

Our fears are confirmed when we enter marginal trades. If you only trade the best opportunities, you will trade less but you will have greater success. This will put you on the road to fearless trading and help you simplify your trading approach. Write down your rules and do nothing unless every rule is satisfied. When you consider a stock, look for a reason to avoid the trade. If you can't find one, then you have a trade worth taking.

Buy with Confidence

The rules that you trade with must have a foundation of success. You must believe in your rules or you won't believe in holding the stock through the shakeout periods in the longer-term up trend. Analyze and test the strategy until you have proven to yourself that it works. Then trade it slowly without a lot of risk, so you can gain a greater level of confidence that it works.

Don't Watch the Scoreboard

Sports fans don't spend a lot of time watching the scoreboard during a game. It only matters when the game is over. In trading, the scoreboard is the profit and loss figure for your account. If you focus on the scoreboard, it is likely that you will lose sight of what's happening in the game. As a technical trader, all that matters to me is what the chart is telling me.