In This Week’s Issue:
– Stockscores Trader Training – November Webinars
– Stockscores’ Market Minutes Video – Weekly Market Analysis
– Stockscores Trader Training – The Money Can’t Matter
– Stock Features of the Week – Weakness Ahead
Stockscores November Webinars
First webinar for November runs this Thursday at 6pm PT (9 ET) with more planned for the following week. Click here to see the schedule and topics.
Stockscores Market Minutes Video – Weekly Market Analysis
See my analysis for the US and Canadian stock markets plus Gold, Oil and the US Dollar. Important developments for the week ahead.Click Here to Watch To get instant updates when I upload a new video, subscribe to the Stockscores Youtube Channel.
Trader Training – The Money Can’t Matter
What are your motivations for trading the stock market? If you are a relatively normal person then it is likely that you trade to make money. However, I have found that trading to make money is dangerous because of the emotional attachment we have to our cash. The
best traders have different motivations.
Consider something as simple as crossing the road. What do you think about when crossing a busy street? Are you solely motivated to achieve the obvious goal of getting to the other side? Not likely. You are probably thinking a lot about getting to the other side without getting run over.
While this seems obviously silly, the correlation that can be made to trading demonstrates an important point. When we focus on money, when we are motivated by greed, we tend to ignore the obvious. If you are trading to make money then a number of psychological problems enter the trading decision.
First, we worry about missing out on an opportunity. We may look at a trade and think that it is not ideal but still “pretty good”. We remember the last “pretty good” trade set up that came along and how it did really well. We remember the pain that we associate with missing out on that pretty good trade set up that we ignored and that motivates us to take this trade, even though it is less than ideal.
Would you cross a busy road if you had a “pretty good” chance of making it without being hit? Would you jump out of an airplane if there was a “pretty good chance” that your parachute would open?
Second, when our trading decisions are motivated solely by money, we tend to work very hard to find something to trade. While a good work ethic is important to be successful in life, working hard to identify opportunities in the stock market is not always good. Doing so means we work hard to find things that are not obvious, and therefore, may not be good enough to even be worth trading. I find that my very best trades are the ones that I don’t have to think twice about, those that jump off my trading screen when the stock is in front of me. I don’t work hard to find them, they find me.
Third, when we trade just to make money we tend to sell our winners too soon. We want to lock in that good feeling of making a profit and don’t want to ever feel the frustration of having a winner turn in to a loser. So, we exit the stock when it feels good or at the first sign that the trade might make us feel bad. This causes us to not ride out the inevitable pull backs along a longer term trend.
Finally, focusing on the money causes us to now manage risk ineffectively. When we think about how much we “could” make if the stock goes up then we might buy a position larger than we are willing to lose. By taking too much risk, we are more likely to not sell our losers when they reach a sell signal or exit our winners too soon because of the fear that the winner will turn in to a loser.
Rather than focus on money when you trade, I want you to focus on being right. Do your analysis on a stock and then ask, “am I right to buy this stock?” “Am I right to short sell this stock?”
Make your trading an intellectual exercise, a challenge to your brain to be right more than you are wrong. Take your focus off of the green and on to the black and white. The easiest way to do this is to only look at the charts and not look at your account’s profit and loss indicator. I strongly believe that if you focus on making the right decision instead of focusing on making money, you will end up making more of it anyway.
The six week upward trend for the market was broken today indicating that there will be some near term profit taking in US stocks. I have found that the best way to take advantage of market weakness is through the VIX related ETFs. Below are the two that I will focus on trading as long as the volatility continues.
1. VXX
VXX is what I play on a day like today (Monday) when there is heavy selling in stocks as it tends to go up when the market goes down. It is based on the implied volatility of the S&P 500 index futures. The more people are worried about a correction, the more protection they buy in the futures market and that raises the implied volatility. i base my trading decisions on the intraday chart rather than the daily which tends to be too slow.
2. XIV
XIV represents the inverse of the VXX, it will go up when the market makes its inevitable bounces in a downward trend. Since a trend rarely goes straight up or down, I like to switch back and forth between this and the VXX as prices gyrate within the trend.
References
- Get the Stockscore on any of over 20,000 North American stocks.
- Background on the theories used by Stockscores.
- Strategies that can help you find new opportunities.
- Scan the market using extensive filter criteria.
- Build a portfolio of stocks and view a slide show of their charts.
- See which sectors are leading the market, and their components.
Disclaimer
This is not an investment advisory, and should not be used to make investment decisions. Information in Stockscores Perspectives is often opinionated and should be considered for information purposes only. No stock exchange anywhere has approved or disapproved of the information contained herein. There is no express or implied solicitation to buy or sell securities. The writers and editors of Perspectives may have positions in the stocks discussed above and may trade in the stocks mentioned. Don’t consider buying or selling any stock without conducting your own due diligence.
