Trading Lesson of the Week

• February 23, 2025
• CCG | STTK

In This Week’s Issue:

• Market Outlook – Fear Building
• This Week’s Market Minutes video – The SECRET Behind Successful Stock Trading Strategies
• Trader Training – Beat Your Trading Enemy
• Strategy – Strong Gainers

Market Outlook – Fear Building

Some substantial selling pressure last week but, despite the downward price moves, the long term upward trends are generally intact. The market that is really testing that upward trend line right now is the SmallCap index, IWM. With interest rates remaining elevated, it is the small cap stocks that suffer the worst.

Ironically, the best trades I am finding are in the SmallCap stocks. While the group is generally weaker than the large cap stocks, it is the low float, low priced stocks that come alive with abnormal price and volume that produce the best gains. It seems like we see a low priced stock more than double every day.

So, if you are a longer term trader, be careful as there is general fear building in the market. If you are a short term day trader, focus on the low priced, low float stocks as they are the source of some of the best trades.

This Week’s Market Minutes Video – The SECRET Behind Successful Stock Trading Strategies

Most traders don't know the real secret behind successful stock market strategies which is why most traders cannot consistently profit. This week, I discuss the three important tactics that all stock market traders and investors have to master to be successful. Then, I provide my analysis of the stock, commodity, currency and bond markets and then the trade of the week on MLGO.

CLICK HERE TO WATCH THIS WEEK'S VIDEO ON YOUTUBE

https://youtu.be/KhemrWHFnMY

Commentary – Beat Your Trading Enemy

Emotion is the greatest enemy of any trader.

Our emotional connection to money often leads to a breakdown in discipline, causing big losses and preventing us from allowing our profitable trades to reach their full potential. It can make us overexpose ourselves in one sector or become overly attached to a stock that ends up hurting us. Allowing emotion to influence trading decisions is a sure path to sleepless nights.

Many investors view the stock market as too risky, especially because of the fear of sudden market drops that could wipe out a portfolio quickly. The 2008 crash left many with what feels like post-traumatic stress, keeping them on the sidelines even when it doesn't make sense.

While the market can be volatile, volatility alone doesn’t create risk. Risk comes from how we react to that volatility and how we manage our potential losses. The market itself isn't inherently risky—it's the way individuals handle it that determines risk.

To sleep well at night while investing in stocks, you need a strategy for managing risk. The old idea of buying "good" companies and forgetting about them is outdated and reckless.

Here are my key principles for investing in stocks without losing sleep:

1. Plan for Losses: When buying a stock, know the price point where the market will prove you wrong. Understand where the stock’s support level is, and if it falls below that, accept that something may be wrong with the company. Cut your losses.
2. Know Your Risk Tolerance: Determine how much you're willing to lose on any one trade. If you risk more than your tolerance, emotions will take over. To calculate how many shares to buy, subtract your stop loss from the entry price and divide the result by your risk tolerance. For example, if you’re willing to risk $500 on a stock at $10 with a stop at $9, you’d buy 500 shares.
3. Avoid Obsession: Don't constantly monitor your stocks. If you're position trading, check once a day or even once a week. Only look for exit signals; obsessing over every price movement will trigger emotions and lead to mistakes.
4. Have a Written Plan: Write down your trading rules. When will you buy, when will you sell, how will you manage risk, and how will you review positions? Keep your plan simple but clear enough to avoid ambiguity.
5. Stick to Your Plan: Your plan should be based on strategies you've tested and trust. Straying from it means you’re venturing into uncharted territory, which is essentially gambling. While gambling traders may experience short-term success, they ultimately lose in the long run.

Remember, trading is only as risky as you make it. Without a plan to limit losses, you leave yourself vulnerable to substantial setbacks in case of a sharp market correction. But with loss limits and discipline, you’ll never fall victim to major market downturns.