Trade Review – $EWZ

For some of my followers, it came as a surprise that I would trade a stock that is beaten down as badly as $EWZ was (and is). These people are justified in their surprise, I don’t trade these dumpster dive trades often at all. I don’t think they yield the best return or have the highest potential for success. The reason why I actually decided to take this trade was simply because, withholding the negatives to the strategy, I want(ed) to diversify my strategy to capture more of the movements in the market.

There were a handful of reasons I decided to take this stock in particular:

1. The stock was on MAJOR long term support
2. The stock was extended below the lower Bollinger Band
3. The stock was forming a hammer on the daily chart
4. The volume pattern associated with this hammer pattern was enormous
5. Risk was easily defined (below the hammer candle)

The combination of these very basic facts of the chart of $EWZ gave enough warrant for me to purchase the stock and to diversify my strategies, something I mentioned I wanted to do in the last post I wrote.

My purchase price was 28.50, my sell was at 29.09. The net profit was not a lot, but the trade confirmed the validity of the strategy. The sell price was selected because it was near the end of the day (on Wednesday 7/29), and coming into a down-sloping 8 ema paired with the fact that the stock trend itself has been horrendous the past few months.

I will continue to monitor this stock over the next few days with the eye for another consolidation period below the moving average(s), which will create another defined stop-loss area (below the recent consolidation).

EWZ Post

2015 is different…

I haven’t been blogging as much this year as years previously, I think that this is due in part because of the overall market condition this year.

This year $SPY is down just under 1% for the year, much different than the (likely) close to 10% it was up at this time last year. Look at the chart of SPY and it will quickly become evident that the market is consolidating this year – up then down, down then up. This leaves me, as a momentum swing trader, in a tricky spot. Rarely do I get much traction in my trades given this condition. Rarely are there stocks that are tight and poised to breakout higher. Often I find stocks that are inside huge consolidation bases and not really doing much in terms of trends, just a ping-pong of price action.

For someone like myself and for everyone in the market, this is likely rather frustrating. Most people make money on trends, up or down, and when there are no trends, then making money becomes a little more difficult. This year, so far, has humbled me and made me realize that my strategy, while good and robust, is far from absent from the providence of the overall market – I am also affected, positively or negatively by the market conditions, we all are.

Over the past month or so, I have been thinking about how I can broaden my strategy to incorporate other trading techniques, namely, trend following (long-term) and short term range bound trading (buying support), I am still pondering how I would trade these strategies and make them congruent to my comfort, but the more I think about it, the more I feel as if that’s the way I need to go with my trading, to grow and continue to learn. To some extent, I have mastered the Coghill Flag (my own pattern technique) and now I need to move on and find some new strategies.

Should be an interesting time, and I am glad you – being my reader and fellow trader – are along for the experience with me. Thanks for listening to this out-loud thought and I look forward to sharing how I am doing down the road. As always, if you want to talk further or have any questions, feel free to message me and I will do my best to get back to you quickly.

Paradoxical Intentions to Success

Tonight when you get into bed be sure to think about sleeping and falling to sleep a bunch. Try your hardest to fall asleep in 10 minutes.

If you’re an experienced snoozer, you know this strategy is flawed. No one can get to sleep if that’s all they’re worried about (going to sleep). It’s strange logic, but if someone thinks about not going to sleep, they will end up fearing not going to sleep and in turn, won’t go to sleep. This is what is called a paradoxical intention; want something, you must aim for something else to get what was originally desired. For sleep, this would mean thinking of anything else, or just earning for rest. Do this, you will get sleep. Think about sleep and you will get nothing, but more tired.

I mention this because paradoxical intentions are everywhere. Aim for money, you won’t have any. Aim for contentment, it’ll elude you. Aim for peace, it’ll be chaos. Aim for happiness, it’ll just never quite be there. The overall theme we see in all these is this; 1) we need to aim for something greater to get the lesser things 2) make something too important, it’ll collapse on itself (won’t ever have enough). The solution; know something greater, something objective that will not fluctuate. 

All too often new traders start in this business with the intention of making money, they usually find one of two things to be true because this is their intention 1) they won’t make any money, for that’s all they’re concerned about  or 2) they won’t ever make enough, which is functionally (and emotionally) the same as the former. For the new and old trader, the secret – one that spans all of life – is to gain, one must lose (the interest in making money, in this case) or to die is to live. In essence, to live or to trade with a purpose is the only way to contentment and success, any other way and you’ll be left with (functionally) nothing. So, what’s the reason you’re trading? For money? Fun? Educational? Job? Emotions? There’s a whole host of potential reasons, but what must remain and what’s essential is the answer to this question; would you still do what you do even if you suffered as a result of it (losing money), if so, you are on your way to success.

Set Ups to Watch Next Week

It’s been a while since I last talked about the setups I am watching and why I am watching them, so that’s what I am going to do this weekend. As always, if you have any questions or comments, feel free to reach out and tell/ask me.

$DPZ, $MGNX, $NLS, $POWR, $RDWR, $WUBA are the main stocks we will be focusing on today. There are more strong stocks than just these that have some potential out there right, but for the sake of our time and sanity, I have narrowed them down to a select few that I like the best.

$DPZ – One of the tightest patterns in the entire list. Part of my strategy is to find the tight set-ups and then set a stop loss close by, thus, lowering the risk associated with the trade. As for DPZ, the stop loss would likely go just below Friday’s lows. I think this one, had I seen it Friday, I would have bought.

6-6-15 DPZ

$MGNX – This pattern is not usually one that I would actually trade, but it is a stock that is inside a base and is holding higher within the consolidation. So, in that sense, there is some potential for upside. The reason why I wouldn’t own it right now is because the BBs are not pinched and the stop would need to be too far away.

6-6-15 MGNX

$NLS – This stock is one that I WILL purchase Monday afternoon if the stock holds higher inside this consolidation pattern one more day and then closes at the highs of the day. Love the strength and how tight this pattern is shaping up to be.

6-6-15 NLS

$POWR – Not the absolute favorite of the group, but definitely own-able versus the lows of Friday, from a swing perspective. I really like the BBs pinch, the closing on the highs of the day and relative strength (versus the SP500).

6-6-15 POWR

$RDWR – By far one of the best out there right now. I really like the way this one looks from a swing perspective. The BBs are pinched, the stock is showing Relative Strength and it is closing at the highs of the day within a consolidation pattern. All these make it a perfect Coghill Flag pattern candidate. If I had seen this one Friday, I would have purchased it.

6-6-15 RDWR

$WUBA – This is one stock that has a ton of potential, but just isn’t quite ready yet to be purchased. If it can hold higher one more day (above the 21 ema) after Friday’s huge upside day, then I will be purchasing it versus the lows of the day Monday. This is a much watch potential set-up going forward.

6-6-15 WUBA

That’s all for now. I hope these help you out as we head into the next week of summer trading.

The Vitalness of Risk Management

I believe the most overlooked discipline to the stock market is the importance and application of risk management. I mean, most people don’t even know what that ‘really’ means, yet they own stocks. People tend to think that buying a stock must mean it has to go up from there and they’ve made the absolute correct investment decision. Doing this is exactly the same as saying you know what the weather is going to do tomorrow, because you looked at a doppler radar. Sure, you can get a good idea about what may happen tomorrow, but even the meteorologists get it wrong sometimes. Purchasing a stock without acknowledging you could be wrong (and know where that point is) is exactly the same as the meteorologist who calls for sun, then it rains, yet he still says it’s sunny. It’s irresponsible and a poor investment strategy.

So, what is risk management? Investopedia describes it as:

“Simply put, risk management is a two-step process – determining what risks exist in an investment and then handling those risks in a way best-suited to your investment objectives.”

But, in my own words a better and simpler way of saying this is: know the point in which your investment is wrong. If you were a meteorologist and you called for rain, yet it was sunny, you would know the point in which you prediction was wrong (when you wake up the next day and it’s sunny, not raining).

The point you pick when purchasing a stock for the ‘infliction’ point (point where you are wrong) is relative to your personality, strategy, time frame, etc. So, unfortunately I cannot tell you a one size fits all formula for this discipline. However, to not know (or have) a point is to not have a robust enough strategy to be competitive in the market place in the long run, I can guarantee you, you will go out of business.

An real example from my trading of the importance of risk management can be seen in a recent trade in $RALY of mine.

I bought this stock on 4/23/15 in anticipation of a breakout higher. So, logically, I would know when I was wrong in this trade when the stock failed to breakout higher. But where is this point? Right below the recent candle’s low (4/23).

5-12-15 raly

Once the risk management level (also called stop loss or infliction point) is determined, the trade can be placed. Unfortunately, this stock did not breakout higher like I had hoped, but luckily I had a plan for this type of event – risk management – and when the infliction point was hit, I sold and moved out of the way as the reason why I was ‘in’ the stock was no longer valid. In this particular case, if I had held onto the stock, it would have cost me a lot more than my measly 3.5% loss, it would have cost me a whopping 14.5% loss and that’s a lot. Imagine if you had three trades in a row where you didn’t have a stop loss and each one you lost 10+%, you would be out of business in no time.

I cannot stress the importance of knowing the point in which your purchase is wrong. If you want to be in the business, you have to know the limits. This is not a get rich quick business, it is a slow grind, through careful analysis of risk and potential. If you want a roller coaster of emotions in your job, you’re better off elsewhere, because if emotions or careless decisions ever get a hold of you in this business, you won’t be around much longer.

Know When To Go Outside

The weather is becoming really beautiful now, highs reaching the 80s consistently (where I am located). Everyone is ready to get back outside and enjoy this weather after being cooped up for the winter, I know I am. But with everything, you have to plan your activities and to go outside when it is going to rain would be (sorta) silly. Similarly, trading during a ‘storm’ (when it is not conducive), will be detrimental to your long term success in the stock market.

Every trader that is going to be profitable long term is going to need to have a process (a set of rules) that they follow when considering to place a trade. The best traders though not only have a process, but have a process that tells them when it should be used and when it is more successful. If you’re a trader and look at the market in the same everyday (without any sort of inclination to the climate of the stocks), it would be like looking at each day’s weather patterns the same way with no regard to whether it is going to be snowing, raining or 100 degrees – it’s just plain foolishness. 

I would like to stress this point; just like the weather patterns, pretty much every trader in the business has different climates in which they find they ‘sweet spot’. For the options guys, it may be when nothing is moving (going sideways), or for the momentum trader(s), it may be when the stocks are going up and then following through the next day – with power (this is me). There is not one size fits all, if there were it would be like there being one weather pattern which satisfied all the people of the world – impossible – so stop looking for the holy grail of trading processes. 

So, here is the climate of the stock market right now:

  • Lack of momentum
  • No follow through
  • Lack of tight stocks (measured by the Bollinger Bands)
  • Lack of stocks closing on the highs of the day

Now, for me this is a climate of the market in which I KNOW I will not make money (much of 2015 has been like this) and because of this, I am going to bring my rain jacket or stays indoors (or in other words; be protective and wait out the storm). 

I hope this helps explain what I have been talking about the past couple weeks, let me know if you have any further questions.


Knowing Your Trading & How to Be a Trader

If you want to know how to trade, you must know yourself and your trading. You probably wonder what that is and what I mean by that, let me do my best to elaborate.

If you’re reading this you are likely a member of StockTwits or Twitter and follow many traders and watch them ‘rake in the money’. I can speak from experience in this regard – they don’t always make money and their strategy is not the only ‘right’ one. When I first started to trade I would follow so many traders on Twitter and watch them trade everyday and seemingly make money each and everyday. I wanted that, but oh how naive I was – just because they could do it did not mean I could or that they had the only way figured out.

Twitter community has a tendency to only show you the good times. Sometimes a trader will Tweet out that they had a losing trade, but more often than not the bad trades that these traders take will be down-played and not spoken about often. On the flip side, the good trades are going to talked about constantly – it’s just the nature of the selfish world we live in. To be clear; I am guilty of this myself. I often Tweet both my good and bad trades but only really elaborate on the good ones.

My aim is this; do not be discouraged or deceived – the traders you often aspire to be are the same ones that the trader himself is aspiring to be. More often than not when learning to trade we are not comparing ourselves to real traders that are ‘so amazing’, but rather comparing ourselves to an untainable imagined trader that people often place on display as a sort of facade.

To be a trader you must drop the unrealistic expectations and comparisons. To be a good trader you must drop the stress of making money. To be a good trader, trading must not be enthralled in trading. To be a good trader, you’ve got to have a realistic expectation. To be a good trader, you be patient. To be a good trader, you must know you’re not ‘a great trader’. 

How do you get to this point? Below are a couple points I want to offer you on that subject:

  • Drop your expectations
  • Live your life outside the charts – don’t think about it all the time, please
  • Learn from others, but don’t expect to do what they do
  • Be patient
  • Consistency
  • Don’t change your strategy because someone else is better than you – who cares
  • Read and Learn but don’t expect it to come in a day

All real traders ‘know’ they are a trader, they have a sense of communication (of sorts) with the charts. They’ve seen the patterns enough that they come more naturally and fluidly. So, please remember you can do it – anyone ‘can’ – but it’ll take losing your expectations and losing your unhealthy desire to do so.

The “TA is Bogus” Fallacy

“TA is Bogus”

People who employ this sort of thought have unfortunately committed a major logical  flaw in their mental processing.

Most people who come to this abrasive, definitive, conclusive opinion about the validity of Technical Analysis (TA), have in fact – done zero research to substantiate this claim. Have you not noticed that people who make the most abrasive (perhaps offensive) claims are also the same people who do not – often – have a shred of evidence for their beliefs. Similarly, ever notice that the people who are consistently calm and unfazed have the most confident position because they HAVE done the research and come to a legitimate conclusion. Now, before I go further I want to say; there are some people who have completed empirical evidence refuting TA – I am not speaking to them – as they are are not the ones who make the abrasive comments, they actually fall on the side of being ‘consistently calm’.

Perhaps there is a bias that influences people’s investigating of the legitimacy of TA before they even get started. Personally, I think this is almost always the case.

So, please be careful with every single thing that ever enters your life whether it be Technical Analysis, A political campaign, a World View – research it with the most open mind you can possibly have as doing it any other way is (or can be) horrendously detrimental to your personal development as a human being (or as a trader).

Til’ next time. Let me know if I can help you in anyway – that’s what I am here for.

The Steps to Learning (How to Trade)

Every so often I am asked to teach someone ‘how to trade’ or ‘how to make money’ or ‘what stocks are’, then list could likely go on, but you get the point. After some time, I think the best thing I could do in answering these questions is to address them in a blog post. The purpose of this post is not to stop people from asking me questions (I am happy to answer them), but rather to educate people on the subject matter before delving into it with inaccurate preconceptions.

First and foremost; trading is difficult. I do not think I realized this when I first started to trade equities. Subconsciously, I believed that trading was just like doing a math problem; you learn the process (the only process) and then that’s all, you would know how to trade forever. This, of course, is far from the truth. By no means I am intending to scare you in saying this, but I feel like you need to hear the truth. Trading is not a ‘walk in the park’, if you open up an account today, do not remotely expect to be able to make money by next week (or even next month). Unlike doing a math problem, there is not only one right way; there are thousands. We are all different and each one of us interprets reality in a slightly different way, the stock-market included. If I were to trade like someone else and try to copy their strategy I would be, in a sense, trying to replicate their cognitive process of interpretation, which of course – is impossible. This being said, it is still very much possible to learn from other people. In fact, I would encourage it. However, be careful not to copy what they say as being absolute truth. What they tell you, may very well be true – but it does not mean it is the only way/truth towards the stock market.

Once you have established the basics and learn some more about the stock market and perhaps have begun to trade, it is time to start to implement some of the implicit rules of trading – risk management. I talk to people on a weekly basis – unfortunately – whom do not implement any sort of risk management into their trading. They go through trades believing they are right (and they could be), but refusing to establish a point in which they are incorrect. This is absolutely detrimental to anyone’s success in the markets (or in life). Consider this, if you were going to to walk into a casino and say to yourself ‘I am going to play until I will’, you will (without a doubt), walk out of that casino with no money left at all. By assuming you are better than the game, you will always lose the game. Humble yourself in face of the market. There is nothing gained from telling yourself you ‘will’ be right. Nothing, other than a lot less money.

Now, the way in which you decide to determine where you are incorrect is very much dependent on your individual process of trading (what we spoke about previously). So, I cannot answer the question of whether or not you should sell something – no one can – except you because you know your process.

I would like to add another note on the process point. It is a daunting task, I know. I have been there. It seems as if you will never be able to create a process that is robust and profitable. It seems as if you have no where to start. I know this feeling all too well. I spent a lot of my early career trying to come up with something – out of nothing – to be my process. This is failing way to develop a process. May I recommend the following tips:

  • Study other’s process – see how they work and don’t work
  • Try to trade a couple stocks based off a pattern – learn from them. Did they work?
  • Read about more patterns and trading strategies. Don’t settle.
  • Trial and Error.

There is nothing more I can say without overstepping my bounds other than what is above. Creating a process is a grueling process and it isn’t fun as you will likely lose money – at first. Remain confident and steadfast in your pursuit, which leads me to my last point.

The reason for your trading is the most crucial thing you have. If you are trading solely for making money, you will lose. The market does not like greedy people and if this is you, please humble yourself before every placing a trade and realize the market is bigger than you and isn’t a piggy bank full of money. Trade because you enjoy it, not because you it makes you money. The most successful traders are trading because they like the concepts, the psychology, the mindset, the introspective learning that it brings; not centrally focused upon the money.

This hardly covered it all but in your learning how to trade, I would strongly recommend that you refer back to this article and reflect on the what and they why of your trading. Feel free to reach out if you have any questions!

Before the Car Ride Home

When is the last time you didn’t feel so well, mentally?

Likely not too terribly long ago. It happens often, whether because of trading, relationships, events or the countless other not so pleasant things that can occur. The important thing is what we do once we get this feeling. Let’s take trading for example.

Joe (made up), had a poor week and last all the month’s earnings. He doesn’t feel good at all, has the lurking feeling of despair deep inside him as he drives back home that night (you know the one). Obviously, to simply tell him that it is going to Okay likely is not going to be enough – even though it is the truth. Joe has a couple decisions he can make, one to reconcile the situation and one that makes it (probably) worse.

1. He quits. He looks at the day’s work and says ‘Trading is not for me, can’t be. I am simply not good enough. Apparently I do not know what I am doing after all, despite winning some.” 


2. He says “This is not a good day. But I know that I have made money in the past and I have this process of mine that I can fall back on that is the truth, my crux, the essential piece. This process is immutable, I have managed to make it out of trial and error and even though it is not 100% factually based to the point that is not irrefutable (even conceptually), I have faith in it’s ability and it has worked for me.”

In the case of the first decision, Joe obviously made a poor and emotional decision when it came to the determining of whether or not he should continuing trading. Now, be careful here, I am not saying that once you trade once, he should never stop and never change; no. Not at all. I believe that trading is not for everyone, but to give up because of one bad day/month is not reason enough to throw in the towel on the whole thing.

Okay, so if Joe were to select the second choice he would be making a wise, thoughtful decision for his livelihood (mentally and economically). He recognized the importance of taking a step back and looking at the facts before coming to an unsubstantiated conclusion.

Let’s now be honest with ourselves. Joe is us. Joe is not simply some imaginary character in another world. He is us. We have all been Joe before and will again (probably sooner than later).

Before you get in the car and start that drive home in the midst of a poor mental mindset, remember to take a step back; look at the facts, the history and what is truly important (or not).