Drown Out the Noise in Noise of Your Own

The market is a noisy place. A good analogy would be to imagine yourself at a Electronic Dance Music concert full of teenagers all screaming at the top of their lungs, now multiply that by a few times and you get closer to how noisy the stock market is like. Within the stock market there are many different types of noise though, some are good and enjoyable, while others are annoying, (ie. EDM music).

The Bad Noise

The bad sort of noise within the market is what we have all heard before; the Television, Radio, Twitter/StockTwits, Magazines, etc. Essentially, any media source can be considered, to some degree ‘bad noise’ (perhaps even this). The consequences to listening to this noise can be detrimental to your overall emotional well-being, let alone your success in the stock market. Reading and listening to everyone’s opinion is not only a difficult task, but is physically, mentally, emotionally exhausting. This is especially true when it is your money in which you are trying to make educated decisions about through your personal preferences. If you choose to read/listen to others, it hinders your mental strength to focus and implement your personal process towards the stock-market. However, the clarification needs to be made that I think it is extremely, vitally, important to examine your process, refine it and learn more from other people. Do not shut yourself off from the outside world in the name of ‘bad noise’, rather, recognize the role it plays and the importance level it holds in your process (which shouldn’t be high).

The Good Noise

The ‘good’ noise is the exact opposite of the above ‘bad’ noise. In this case, this is the noise you want to listen to, or in other words, this is when your favorite band plays your favorite song on a Friday night in late Spring. This is, your process’ noise. Just as we discussed in the previous paragraph, all media sources have the potential to be a ‘bad noise’ (if you let it be), the only reason why we consider this to be ‘bad’ is it is not your personal process, it is someone else’s. However, when it comes to your personal process, turn up the noise, make it loud, make it heard, consume yourself in it like a crazy fan would to their favorite band.

Recognizing the difference between good and bad noise is important, not for you to ignore other’s work, but rather so you know where you stand and you can stand firm in your beliefs but all the while learning and growing from the study of other people. 

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Swing Long ZTS (Zoetis Inc.) & GPT (GPT Group)

I entered a new position today, long both $GPT and $ZTS. I entered these today based off the daily chart patterns they’ve developed over the past few weeks. The pattern I look for is a simple one, it is called The Coghill Flag and a basic outline of it is below, if you would like a more detailed description of this type of trade, following this link: The Coghill Flag. The reason I purchased these stocks is that they are both:

- Relatively Strong (to the rest of the stocks in the market)

          -> Meaning, they are both above their 21 ema and holding while most stocks are chopping up and down them

- Both stocks are consolidated within tight patterns 

          -> This means that the Bollinger Bands are pinched together in a compressed state

- Both of the stocks have easily defined risk 

          -> The stop for $GPT is below today’s lows and the stop for $ZTS is below the 21 ema on the daily chart.

- Both of the stocks are ‘holding higher’ 

          -> This means that they are showing commitment to their recent gains in price (bulls continue to demand the stock and soak up the supply).

The trade is simple and the above reasons are the only reason why I purchased these stocks. I am not here to over-complicate things, let’s simply focus on what’s important (following our process) and forget all the nonsensical over-complex descriptions of the WHY. Below are the charts of the two stocks listed above.

If you would like to learn more about this pattern I am trading, you can do so here –> The Coghill Flag

1-22-15 gpt

1-22-15 zts

Agnosticism (in terms of the securities market)

Agnosticism: “a person who denies or doubts the possibility of ultimate knowledge insome area of study.”  – Dictionary.com 

The above definition is the context in which I will use the word ‘Agnosticism’ in this post. I am by no means, whatsoever, referring to the philosophical, metaphysical or theological implications in which this word is often used.

I believe (which is a tricky word in and of itself), that treating the securities market in terms of being agnostic towards the direction of the future price movement is not just a reasonable and logical viewpoint, but rather, is the only perception that we (as participants) should and can take towards the markets.

No one knows where a stock, commodity, etc. is going, not a single person. Any person that claims they know is literally lying through their teeth (yeah, harsh, but true). To claim that you know the future is like claiming you know the unknowable, it is logically, impossible. To give some context to this massive claim a person is making that says “This stock WILL do ‘XYZ'” just think about the number of shares traded in a day, millions (probably billions total), think about the number of market participants on any given day, millions.

Now, for someone to claim they know the future they would have to:

a) Know exactly how every single one of the market participants interprets the facts (price action, economic data, news, etc.). This is impossible as every single one of us thinks in a different way. I could read the sentence ‘The stock market went down a lot’ to mean “Oh, wow – must have gone down over 500 points.” and another person could interpret the same headline like, “Oh, that’s okay, must mean it went down 25 points.”. See the difference? Each an every one of us has our own interpretation of what we perceive. Each one of us has a different ‘anchor’ that we create relative comparisons to, to derive meaning of what we perceive on a daily basis in the stock market. To sum up, we all (for the most part) receive the same stimuli but when it enters into our cognitive process, the meaning of this stimuli can (and does) differ significantly from one human to another, rendering this possibility 100% illogical. 

b) The people making the claim must have ‘rigged’ the market in some fashion. This task is quite challenging feat considering all the computers, legal and governmental influence that is currently within our capital markets. I cannot say for sure it is impossible to do, but come on, the chances of this taking place are minimal. So small that we can safely come to the conclusion that  the person that is making a claim to where the market is heading has a a astronomically small chance of actually rigging the market in such a way to make their claim true. However, let’s say this DID take place, someone actually did ‘rig’ the market to move in such a way, do you think they would ever share that information with anyone at all? Not at all, never.

As the two premises above discuss, anyone who claims the market is going to move in one way is a) lying and b) a fool for thinking he is that smart.

To tie this all back together, being agnostic towards the market is logically the only stance that can be taken towards the direction of a future move. No one can have knowledge of what the unknown is and once this is accepted, the burden of trying to guess the markets move is relinquished and being a trader is no longer a stressful game of black and white wrong choices. Rather, it is a market is constant gray choices, it is creating a plan for all the moves (up, down, sideways) and respecting the unknown as it so should be. This is the point in which your process comes in. You need a process to plan for the unknown, not guess the unknown. You need a process to react to the unknowable, not know the unknowable.

Failed BreakDown in Precious Metals?

Ask anyone about the precious metals and they probably will say something like “They are always a great investment and you should be buying them now before they fly back up.” The problem with this isn’t that their argument isn’t coherent, it is. The problem is it isn’t actionable – that same argument could have been said for the past few years. No one knows when the bottom is, period. So using the historical performance to justify buying/selling solely based upon the what it has done in the past week/month/year is foolish. What gives someone the power to determine what is ‘down a lot’ or ‘not down a lot’, or even more specifically ‘down a lot to the level you need to buy.’?

Here’s the point: No one knows when the bottom is, just because something goes down, doesn’t mean it has to go back up according to your definition of what ‘down enough’ is. 

This being said, there are patterns in which price forms that indicate which way the security may move and whose ‘in control’. In the case of the precious metals, there is a potential for a failed breakdown. What this means is: a stock broke down under support, getting people short and then it rallies back above the breakdown point – forcing all the new shorts to cover for losses and subsequently the stock rallies further. 

This exact pattern may be occurring in the precious metal sector. Let’s take a look at a few charts.

1-10-15 gdx 1-10-15 gld 1-10-15 sil

The above charts are: $GDX, $GLD and finally $SIL – Gold miners, Gold ETF and Silver Miners, respectively. The brown-ish circle that is seen in each one of the charts circles the period of time the stock spent underneath the breakdown point. The horizontal line represents the breakdown level.

So, if this is a failed breakdown then in the next week or two the price of these instruments should pass back above the breakdown level (seen above) and then continue to show strength, creating a new uptrend. If this is the case, there will be a lot of nice trades to be placed, if it doesn’t? Well, nothing changes in that case – the precious metals continue to be very un-precious.

A couple of stocks I like if this is going to be the case (failed breakdown) are $AUY, $NEM and $SLW. This will be something interesting to watch over the next week or so, have a great weekend all.

Why I Purchased TWTR Today

Let’s not sugar coat it. Trading is hard. Really hard. If it weren’t, every single person would be doing it and we would be multi-billionaires, but as far as I know – this is not the case. Therefore, if it is the truth that trading is truly a difficult business to be in, the number one thing we need to do/know is to have a plan of approach for this chosen business. For me, this is simple and outlined here: My Strategy and Process and here with my set-up: The Coghill Flag.

Today, I purchased $TWTR (Twitter) as per my rules (listed above). I did so because of the rules that I created to keep me on track in terms of developing a successful career. So instead of just reviewing these over-stated rules (I do this often), I going to outline exactly why I like this chart and the targets and my trade-plan.

First, let’s just use a bullet point format to outline some of the reasons why I like this stock for a long trade

  • It is not extended, it has essentially done nothing over the course of the past few months
  • It was strong all day today (1/8/15)
  • The price is within a contraction (as per Bollinger Band analysis)
  • It is currently above the 21 exponential moving average
  • The risk is clearly definable
    • Below today’s lows (37.00), I will sell the stock for a loss as the above premises will no longer be true

So, we have some reasons why I like the stock, now let’s go over what the plan is for the trade.

The stop loss, as stated earlier will be below 37.00 a share, this is the point where the reason I took the trade is no longer true

The target for this trade is not a simple answer. First off, part of my rules is to sell half on the breakout and then sell the other half on continued strength. So, in the case of TWTR – the first sale will be near 40.00 a share (I will sell half). After this I will trail the stock versus the 8 ema or on further strength (3 days outside the upper BB), I will sell the other half. Now, the reason for selecting 40.00 a share for the first sale price is clearly visible on the chart below, it is a level of price memory (meaning, the stock price has reacted – up or down – when it has reached this level before), which has now turned into resistance. However, along with this reason I tend to select round numbers for my stop losses and targets as I ‘feel’ like they provide a more significant level of action + I am really not that smart to call out a random number for a price target down the penny for a target.

So, there you have it. This is the thought process of why I bought TWTR and the plan I will enact as a result of it. Let me know if you have any questions.

1-8-15 TWTR

Deserving the Loss

The concept of deserving a loss isn’t a pleasant one to discuss, for a couple of reasons.

The most obvious is; we do not enjoy losing money. This reason is obvious, almost goes unspoken – but it’s true. The second, and less obvious reason is; we all have an ego that says ‘No, you only deserve the best of the best and never “deserve” to lose money.’. This reason perhaps is often overlooked when it comes to us (as human beings), but it is unquestionably true when it comes to analyzing a loss (of any sort).

So, this begs the question: When do we deserve a loss? We will of course answer this question, with another question: Do we ever not deserve a loss? Or to word it differently, is there ever point in which we deserve a win?

The answer to the last question there is simply, no. We never deserve a win – the market owes us nothing, at all. This is a difficult thing to wrap your head around because at the end of the day, that is the only reason why we are in the market – to make money and it logically does not make sense to be in a business that never owes us money. But there in lies the paradoxically difficulty of being a market participant: We work so hard to make money with something that never does a thing for us, and never owes us a penny.

Let’s wrap this up.

This being said, we can deserve a loss, at least in a figure of speech sort of way – not literally in terms if dollars. The way we deserve a loss is if we fail to implement our process, rules and discipline when it comes to taking a trade. If we fail to do these things, we fail ourselves, thus, even if it still wins – we should/deserve the loss for not following our process that we (ourselves) laid out to protect us.

This is What WILL Happen in 2015

This is what WILL happen in 2015. You can thank me later for writing this.

  • You will breathe oxygen
  • Your heart will continue to beat (we all hope)
  • You will eat some food
  • The grass will need to be cut a few times
  • Your hair will continue to grow – may need to get it cut at some point
  • Your age will increase by exactly ‘1’
  • Apple will come out with another iPhone- and thousands of people will want it
  • Another country will be in the news
  • Something bad will happen
  • Something great will happen

Finally…

  • It will be become 2016

The thing is, we don’t know what is going to happen in 2015. We can come up with educated hypothesizes, and reason our way into some conclusions but at the end of the day, we are not genies. We don’t know what is going to happen and that is what makes everything about the stock market so exciting – no one knows and no one will – we are all in this together, learning and experiencing.

My 2014 Track Record (And Journal)

I have decided to share my track record from this past year. By track record I mean; all my trades, all my losses and all my gains, along with this, I am going to share with you a graph of my performance relative to the SP500 plus a glimpse of my Sharpe Ratio.

The reason I am doing all this is simple, I want to build a track record for my (potential) future career within this industry. Also, I should note: This is only for educational purposes – I am not selling anything and do not manage anyone’s money (at this time).

So, before we really get into the numbers of it all, I would like to reflect on how I performed this year. I finished up above 17%, which is great on the surface, but I believe I can do better, I would like to do better. So, here are some things off the top of my mind that I would like to improve upon during 2015.

  • I had losses this past year and will always have them, it is apart of the business but the losses I did have could have been (somewhat) avoided. Specifically, I often placed trades when I should not have. The most prevalent example of this is when I had not traded for a couple weeks and then would allow my emotions subconsciously take ahold of me and force me into a trade that was not 100% aligned with my process I had built.
  • Relative performance hurt me this year. I constantly would compare myself to the SP500, which is extremely damaging from an emotional perspective. I actually wrote a post about this previously, you could read more here: http://www.bencbanks.com/relative-performance-emotional-health/ I hope I can improve upon this in the future, I am sure I will always struggle with it to some degree though.
  • Confidence. Every single trader can get better at this, doesn’t matter who they are. My confidence definitely improved over the course of the year, but I am constantly looking to become even more confident (should be an unspoken goal).
  • Patience. Another one of those unspoken goals, but nevertheless, should be mentioned. There were many times this past year in which I rushed a trade, got out too early or something along those lines. My goal for 2015 is to slow it down and trust in my process.

I am almost sure there are more than just these few things that I can (and should) improve upon when it comes to my trading but as I sit here and write, those are the ones that come to mind first.

At this point, if you are still on this post you are probably ready to see some numbers, well that is understandable and I am ready to share. Below are some screen shots from my excel document that tracks all my trades. I am not sharing with you the actual monetary gain or loss because that is irrelevant to you (so, please do not ask). However, the percentages are all accurate and I look forward to reading and replying to your comments!

(Please note: This information is as of 12:45 PM on December 30th 2014)

All TradesMore of all trades

Above you will find every single trade I took in 2014, not a single one is missing. Even the ones I did not Tweet about are on here, all the mistakes can be seen, all the losses and all the gains are there for your viewing. If you click on the image it will pull up a bigger view of the image for easier viewing. On this spreadsheet; average purchase price, sale price and then the gross and net P/L (in percentage terms).

Monthly Peformance rel to sp500

This next screenshot is showing my relative performance on a cumulative, monthly basis versus the SP500. Again, all my mistakes are here, if you look closely my performance took a dip in the last quarter of the year – that’s unfortunate but doesn’t matter in the scheme of things, it is about improving in the long run, not on a weekly or even monthly basis. 

Chart of chart

This is probably the most interesting of all the graphics you will see on this post. The graph above shows you my relative performance versus the SP500 on a monthly basis. Again, you can see my performance took a dip in the last quarter (reflected on this dip earlier in this post on ‘Things I Can Do Better’). At the end of the day though, I finished about 5% better than the SP500.

Monthly PerformanceSharpe Ratio

Finally, but far from the least I have my Sharpe Ratio calculated above. I use the 3-month t-bill to calculate it, but raised it to the 1/12 power so it is now based on it’s monthly return (that being the 3 month t-bill). My portfolio’s volatility is far less than the SP500’s, which is evident from the monthly returns listed above, my worst month coming in at around .70% and best coming in at 3.43%  – this volatility is far less than the typical equity index, which I am proud of. My goal is slow, consistent but strong growth of my monetary capital. 

 

Well, that is all I have for you today. As always, if you have any questions – I’ll do my best to answer them, but the only way I can do that is if you send me an email. So, if there is something that caught your eye or you would like to learn more, send me an email. Otherwise, talk you soon and see you in 2015!

2015 Investment & Ideas

Hello everyone, thanks for stopping by again to check out what I have to say – means a lot, as always.

So, every year I come out with a blog post listing some of my TOP trade for the full year, sort of like investments. Hard to believe this is my third year doing this post – time flies by, fast.

A little bit of background; I do not trade based off of P/Es or cash flow statements, I only use historical price data to make my decisions, which is called ‘Technical Analysis’. Below you will find the chart of the company I am looking at for a trade and then a short description of why the chart is attractive to me for a trade. Enjoy and let me know if you have any questions.

Stocks in post: $JMBA, $PLCE, $KCG, $RVBD, $FLTX, $HWAY, $LPSN, $TA

The way this will work is I will describe what I like about the stock, and where the stop loss should be in this investment. All of this will be below the chart(s).

JMBA long TermJMBA risk close

 

$JMBA – The first of the stocks for 2015 that caught my eye (remember in no particular order). The reason why this one looks good to me is this: It has a long base (see first chart) and it is starting to ‘holder higher’ (consolidate in a tight range recently). The bottom chart of the two above is simply a ‘zoomed in’ version of the same chart and on this chart it shows where the stop loss should be on this investment, around $11.37.

LPSN

 

$LPSN – Next on on the list: LPSN. I should note, all of these charts are either on the weekly or monthly timeframe, also I am looking for the same thing in all of these stocks: Long bases, showing relative strength while the price is contracting. Luckily, LPSN shows all these characteristics, and the stop loss on this stock should go where the middle line is (about $11.90).

TA

$TA – The third, but far from the worst – $TA. I absolutely adore this chart. The base is enormous, and the risk associated with this stock is so well defined – below $9.10 and you are out, cut the losses and move on.

HWAY

$HWAY – I am sure you have started to see a pattern at this point, long bases, and forming bull-flag type patterns. If this is the case, then good, because here is another one right here. Again, the risk is beautifully defined as below $14.30 (meaning you exit all your shares at this level as your analysis/trade idea was incorrect).

FLTX

 

 

 

$FLTX – A little bit of a different pattern, but this chart still has some awesome potential. The risk is clearly defined as below 34.20, you are out. If it breaks out over the top line (drawn on chart), then this stock likely will have a killer 2015.

RVBD

$RVBD – Should not come as that much of a surprise that there is another one of these long bases charts in the list of investments. I really like how this chart refuses to go down and that it has formed an extremely tight price contraction (on the monthly basis). Along with all of this, the risk (stop line) is clearly defined as to be below $17.40.

KCG

$KCG – On a relative basis, this is a pretty new issue stock. New issues can lead to some absolutely massive gains, along with this though they are also associated with a ton of risk, therefore we have to be careful with this one and respect that stop loss zone. The reason why I really like this chart is because of how well it has consolidated over the past year or so and now starting to ‘hold higher’ over the 21EMA. The stop loss for this investment is below $11.00 a share.

PLCE

$PLCE – The last stock on the list for 2015 is PLCE. I’ll be honest, this is not my favorite chart, but nevertheless, the base is long and it has some potential. The stop loss for this stock is $52.50.

 

So, there we have. Those are all my favorite stocks for the next year. As always, if you have any questions, let me know – I know some of this is complex, but I am here to help. Hope you all have a GREAT year, I know I am looking forward to it. 

 

What to Look For & How Long Do Topping Patterns Last

How long do topping patterns last? And what should I look for? 

Well, the most truthful answer to this question is this: A LONG TIME, and by a long time, I mean months, years, decades. Have you ever heard of the saying ‘the larger the base, the higher in space.’? Well, this saying is true, but it is also applicable to the inverse scenario, that being the larger the base, the larger the drop.

To determine if something is a topping pattern or not, the most obvious answer is the answer to this question ‘is it going down?’. If this is true, well then it was a topping pattern, that was simple. However, I assume you mean ‘what can you spot to determine whether or not something is topping?’. This question is a tad more difficult, but I will do my best to answer the question. I usually look for this following in determining whether or not something is topping:

  • Choppy price action
  • Large red or green candles, volatility
  • Flat to downsloping MAs
  • Relative Weakness
  • A large base

If some or all of these above criteria is true, you likely have a topping pattern on your hands and should trade accordingly.

So to reiterate all of this, topping patterns can last a long time, depending on the size of the base (price consolidation). Also, Topping usually happens in the form of choppy price action. If both of these two things happen at the same time, watch out.