Category Archives for "Free CMU"

Jan 23

CMU: Did you sell? Always be ready to get back in

By Jani Ziedins | Free CMU

Cracked.Market University:

There is plenty of advice on how to get out of the market. Whether that is taking profits when the market hits your price target or bailing out defensively when the market retreats to your stop-loss. But what you don’t hear very often is how important it is to get back in when you realize you sold too early.

The single greatest strength we have as independent traders is the nimbleness of our size. While institutional investors have impressive degrees, decades of experience, an army of researchers, and industry contacts we could never duplicate, what they don’t have is speed. It takes them weeks, even months to establish full positions, something we do in the amount of time it takes to make a few mouse clicks.

But with that nimbleness comes responsibility. Taking profits early and often is always a good idea. But so is continuing to watch the market for the opportunity to get back in. All too often people flip their outlook on a trade as soon as they sell. All of a sudden what was a great and profitable trade transforms into an outdated and used up idea. But a lot of times there is life still left in a good ideal and we should not let ourselves miss out on it just because we sold last week, yesterday, or even an hour ago.

Every time you sell, have a plan on what it would take to get back in. Maybe you jump back in if the market pulls back to a certain level. But what if the pullback never happens? Do you have a plan to get back in if it keeps going higher? While we never recklessly chase a move higher, maybe the stock is more resilient than we expected. But rather than missing the next leg higher because we are stubborn, have a plan to buy when prices exceed the prior highs.

There is nothing wrong with taking profits when your trading plan tells you to take profits. In fact, it would be wrong to not follow our trading plan. But once we are out, always be looking for that next entry point. It could happen a lot sooner than you expect.

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Tags: S&P 500 Nasdaq $SPY $SPX $QQQ $IWM

Jan 21

CMU: Lesson 1: Trading is hard

By Jani Ziedins | Free CMU

Cracked.Market University:

I learned many things through my three decades of trading experience, but none have been more all-encompassing than the simple idea, “Trading is hard.” If I’m only allowed to share a single idea with a new trader, this would be the one.

We arrive with different backgrounds and with varying ambitions, but the one thing that unifies all of us is the belief we can beat the market. The concept seems easy enough. Come up with an idea. Move a little money around with a few mouse clicks. And blamo, profit! Or at least that was the notion that brought us here.

But as most of us have already figured out, reality is far different. In fact, I’ve come to believe trading successfully is one of the most challenging ways to earn a living. In most fields it is pretty straight forward, the harder you work, the more successful you are. Unfortunately, there is no such correlation in the stock market. A well researched and thought out idea has nearly the same chance of being correct as a coin flip. In fact, there have been documents cases of dart-throwing monkies outperforming some of the smartest and most experienced professionals in this business. Talk about humbling!

The challenge with trading is the only thing that matters is when we open a position and when we close it. It doesn’t matter how we came up with the idea. It doesn’t even matter if we were right. The only thing that matters is if the market moved in our direction between while we held it. Sometimes we get it right and make money. (Yeah!) Other times we are wrong. (Boo!) But far and away the most frustrating cases is when our idea was spot-on but somehow we still managed to screw it up. (WTF?!?)

The truth is, trading is as much about managing ourselves as it is about having a good idea. Can we control both our positive and negative emotions? Do we have a sound risk management strategy? Do we know how to get in and get out at the most favorable times? Are we capable of admitting our mistakes?

I wish I had a simple or easy answer to help new traders getting started out, but the simple truth is trading is nowhere as easy as it seems. But don’t get discouraged. As long as you educate yourself, have a sensible plan, and stick with it, eventually this gets less hard. (It is never easy)

Over the next few months I plan on writing brief posts covering all of my Trading Rules. If you want to receive the list of my list of Trading Rules and be notified when new posts are published, signup for FREE Email Alerts.

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Jan 17

CMU: You have profits, now what?

By Jani Ziedins | Free CMU

Cracked.Market University:

The indexes are at record highs and anyone not obsessed with fighting this market is sitting on a pile of profits. The question now becomes, “what should we do with these profits?”

The first thing to remember is markets move in waves. Everyone knows this but people often forget this simple idea in the heat of battle. When it feels like all hope is lost and we are on the verge of a far larger crash is the exact moment prices bottom and bounce. The same goes for the upside, the moment this starts feeling is easy is right before it turns hard.

I’ve been doing this far too long to attempt picking tops. And even if I were picking a top, this probably wouldn’t be it. That said, we don’t have to pick tops in order to make decisions that protect our profits. It’s been a good run. Stocks are up more than 100 points since last week’s intraday lows. And we are nearly 20% higher than last fall’s test of 2,800 support. Could we rally another 100 points next week? Absolutely. Could we advance another 20% over the next three months? Sure. But just because we can do something doesn’t mean we will.

We can look back in history and find several instances where the market advanced 40% over 6 months. But when you consider it took 100 years to accumulate that handful of instances, just because something is possible doesn’t mean we should trade using those assumptions. While these things can and have happened, we shouldn’t expect them to happen. Instead, we should treat this market like any other market until it tells us otherwise; two-steps forward, one-step back.

There are two sensible ways of dealing with profits. First, if we are in this to make money, the only way we do that is by selling our winners. No matter how much we like a position, we cannot make money unless we sell it. The problem is selling a position means giving up on further upside and no one wants to do that. But if we remember that most people lose money in the stock market, then we probably don’t want to do what most people do. And most of the time that means selling stocks we don’t want to sell.

Now maybe it is just too hard for us to part with our favorite position. The second alternative is to take this decision out of our hands. Take a moment when everything looks good and the market is not pressuring you in any way. Look at the chart and pick a point where if the market falls to this level, you think you should get out. Write that level down and commit to selling at this price if the market dips back to it. If you are lucky and prices keep moving higher, repeat this exercise every week or two. Keep moving your stops up until that fateful day when the market finally forces you out and you collect your pile of profits.

While this seems like an either/or decision, very few things in the market are binary. Sometimes the best solution is doing a little bit of both. Take some profits proactively and follow the rest of your position higher with a trailing stop. That gives you the best of both worlds. But no matter what you decide, please decide to do something and commit to it. If you wait until the market starts dipping before making a trading decision, chances are emotions will cloud your judgment and you will be moving in lockstep with the masses that lose money.

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Tags: S&P 500 Nasdaq $SPY $SPX $QQQ $IWM

Jan 07

CMU: When to take profits

By Jani Ziedins | Free CMU

Cracked.Market University:

The only way to make money in the stock market is by taking profits in our favorite trades. This blog post covers how I lock-in profits. This is a particularly timely post, not because I think this is the time to take profits, but because of what taking profits allows me to do.

First, I don’t know how to consistently pick tops and I bet most of you don’t either. If we cannot pick the top, then by rule, we are either selling too early or we are selling too late. Both strategies are perfectly acceptable and they come with their own unique set of advantages and disadvantages.

The first and easiest to understand is selling too late. This happens when we hold a stock past the peak and sell it on the way down. We’re in this to make money and that means we naturally want to squeeze every last dime of profit out of a trade. Who wants to sell for a 10% profit only to watch the stock rally another 200%?

The most conventional way of selling late is following the stock higher with a trailing stop. When the stock rallies from $50 to $60, we move our $40 stop up to $50. If the stock moves up to $70, we lift our stop to $60. We repeat this process until the stock finally peaks and dips under our trailing stop. This seems easy enough.

(Of course, a lot of traders are not sensible and rather than employ a thoughtful system like a trailing stop, they react impulsively to every bump in the road and only sell after they become convinced their favorite stock is crashing. And as most of us know from personal experience, this happens moments before prices rebound!)

But there is another way to take profits and is the approach I prefer, selling winners on the way up. The most obvious disadvantage of selling early is once we get out, we give up on any further upside. Unfortunately, most people believe this and it is absolutely not true. Just because we sold last week, yesterday, or even this morning doesn’t mean we cannot jump back in if the conditions warrant it. But most people have the mindset that once they sell, they are out of the trade and this just isn’t true. Selling simply means the risk/reward is no longer stacked in our favor. But like everything in the market, the situation can change quickly.

There are two reasons I like selling early. First, taking profits early frees my mind to look for the next trading opportunity. Selling early leaves me hungry and forces me to start looking for something to do with my cash. Sometimes that means buying back in after a short period out of the market. Other times it allows me to be the hungry dip buyer during the next dip. Second, I don’t like holding stocks moving sideways. I’m not getting paid when a stock is consolidating, yet when I own a stock, I continue holding all of the risks of the unknown. I only want to hold risk when I’m getting paid and that means avoiding stocks moving sideways.

The reason this applies to our current market is because I took profits proactively before the holidays. The S&P 500 rallied above 3,200 in mid-December and that was good enough for me. Every other time the market hit a round level over the last few months, it traded sideways for a bit. Now, I will freely admit I missed the move a few days later to 3,250, but I wasn’t worried about it. Not long after later prices tumbled and when the crowd was fearfully debating whether they should bailout before the market crashes, I was eagerly looking at this dip as a buying opportunity. While people were abandoning ship yesterday, I was buying the dip.

Selling early gives me more flexibility and it keeps me out of the market when I don’t need to be in. I had a nice holiday out of the market and taking profits early left me in a great position to jump back in once the market presented the next opportunity.

That said, this is what works for me and it doesn’t necessarily apply to you. Find the strategy that works for you and stick to it. The only way to do this wrong is making it an emotional decision.

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Tags: S&P 500 Nasdaq $SPY $SPX $QQQ $IWM $STUDY

Dec 27

CMU: When the calendar matters and when it doesn’t

By Jani Ziedins | Free CMU

Cracked Market University: 

With 2020 only a few days away, I want to discuss the “calendar effect”. I alluded to this phenomenon in recent posts, but this is an important concept and worthy of the entire spotlight today.

In a lot of ways, the calendar doesn’t matter. For example, Year-to-Date gains/losses are a meaningless statistic, especially early in the yar. The same can be said for annual gains. 2019 will go down in history as the second-best performance of the last two decades and everyone is cheering these nearly 30% gains!

Unfortunately, 2019’s headline number isn’t so much about how good 2019 has been, but how bad 2018’s fourth quarter was. If we adjust the rolling 12-month period from October 1st, 2018 to October 1st, 2019, these impressive 12-months gains tumble all the way to a measly 0.5% annual return! That’s right, just half-of-a-percent in 12 whole months!  If our calendar went from October to October instead of January to January, the second-best year in two decades turns into a very forgettable performance. Ouch.

While we need to question these somewhat arbitrary rolling periods when making performance comparisons, there are times when the calendar actually matters to the market. It isn’t so much about the calendar itself or even the seasonality of the business cycle, but how institutional investors’ performance is measured and how their managers are paid.

Most institutional funds are judged by their annual performance and that means the managers running these funds live and die by where they stand at the end of every calendar year. There is nothing more important in their world. Next in importance comes the quarterly statements that get mailed to investors. If you want to keep people’s money, then you better show respectable gains at the end of every third month. And lastly, monthly gains, but they don’t matter as much because only the nerdiest of the nerds keep track of those.

Institutional money managers’ entire mindset revolves around March 31st, June 30th, September 30th, and December 31st. All of their decision are driven by how they will look on those four critical days. And since most market moves are propelled by institutional buying and selling, those four days matter to us too.

Currently, there is a lot of pressure on large money managers who are trailing this very impressive year. If they cannot match the market’s gains, at the very least they need to be able to tell their investors that they are in all the right stocks and that the results will come. This chasing of performance is what gives us strong moves in the final months of good quarters and years.

But here’s the important thing, once the calendar rolls over to the next quarter or year, these institutions are starting with a clean slate. Those that were compelled to buy in the final weeks of the year no longer need to chase prices higher because they have just been given three months of breathing room.

This herd buying and selling ahead of the end of quarters and years is what gives quarters and years consistent personalities. Quarters and years are most often up, down, or flat. But once those quarters/years end, we move into a new quarter/year, one that most likely will have a much different personality than the one that preceded it. 2019 was a good year for stocks. Chances are, 2020 will look a lot different. Be ready for it.

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Tags: S&P 500 Nasdaq $SPY $SPX $QQQ $IWM $STUDY

Aug 21

CMU: How to trade the news in our current environment

By Jani Ziedins | Free CMU

Cracked.Market University

How the news affects the stock market is one of the biggest enigmas in trading. Intuitively, bad news should make stock prices go down and good news makes them go up. Unfortunately, it is rarely that simple. This often contradictory puzzle of news and the stock market is the number one reason people claim “the market is rigged”.

While news is important to the stock market, the thing most people forget is news by itself doesn’t move prices, only traders buying and selling can do that. If we take this concept to the next level, it isn’t news driving market moves, but traders’ reaction to the news that matters.

Why this distinction is so important is because all traders come to the market with expectations. Expectations and beliefs about what will happen next. That means it isn’t whether the news is good or bad, but if the news is better or worse than the crowd expects. This is where the confusing paradox of “good news is bad” and “bad news is good” comes from.

Traders often correctly anticipate a piece of news and they trade the market ahead of it. And when their intuition proves right, rather than make money, the trader gets hit with a stinging loss when the market moves in the opposite direction of what it “should do”. When traders get the news right but lose money is when they start claiming “the market is rigged”. Sound familiar?

The mistake is thinking the market should react to the news. What we really should be focused on is the market’s reaction to the news, not the news itself. This is concept is extremely important in the current environment. Trade wars, Fed interest rates, and hints of a looming recession have may traders running scared. But paradoxically, the stock market remains stubbornly stuck near all-time highs.

If a person was only looking at the headlines, it would be easy to assume the market is well on its way into a bear market. But if we look at the market’s reaction to these headlines, we actually see the opposite. A market that is frustratingly indifferent.

If our goal is to make money, then we should be trading the market, not the news. No matter what we think of these headlines, the only thing that matters is what the market thinks. Keep that in mind when you place your next trade.

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Tags: CMU S&P 500 Nasdaq $SPY $QQQ $study

Dec 19

CMU: Bad Luck Brian buys the dot-com bubble

By Jani Ziedins | Free CMU

Cracked.Market University

If I asked a crowd what was the absolute worst time to start investing over the last few decades, no doubt the most common answer would be at the top of the dot-com bubble. Everyone knows the story. The tech-heavy NASDAQ peaked in March 2000 above 5,000, and it took another 14 agonizing years before the NASDAQ returned to those highs. In the meantime, the Nasdaq plunged more than 70% from those heady highs.

So exactly how bad would it be to start investing at the peak of the dot-com bubble? Let’s find out. For this exercise, we recruited Bad Luck Brian. In 2000, he graduated from college with an engineering degree and landed his first real job in March 2000. Following the advice of everyone around him, he started investing in the tech-heavy Nasdaq. He told human resources to take $500 out each month and put it into a zero-cost Nasdaq index fund.

And true to his name, Bad Luck Brian promptly forgot about his recurring investments in tech stocks. While the smart people were pulling out of their investments during the bloody tech collapse and subsequent recession, Brian continued throwing $500 away every month. He was buying the Nasdaq as it tumbled -10%, -20%, -30%, -40%, -50%, -60% and he even bought when the selling climaxed at -70%. What an idiot, right?

So given how unlucky Brian is, how horribly awful did his investment turn out? The attached chart shows his returns versus the Nasdaq. As expected, the first few years were terrible. Brian lost more than 40% his principle in those early years. But even then something strange was happening. Even though the Nasdaq kept falling, Brian’s losses were consistently smaller than the Nasdaq’s. When the index was 70% under the highs, Brian was only down 40%. While no one wants to be down 40%, that is definitely better than -70%.

And the outperformance didn’t stop there. Believe it or not, Brian’s account actually reached break-even in November of 2003, more than a decade before the Nasdaq could do the same. How could this be?

No doubt many of you already realized why Brian’s account was performing so much better than the Nasdaq. That’s because he kept buying the dip. With every paycheck, he stuck more money into the market. And the further the Nasdaq fell, the more stock Brian was buying.

If we assume one share of the Nasdaq fund cost 1/10th of the index value, with his first $500 in March of 2000, Brian bought approximately 10 shares.  But the next March after the index collapses 55%, Brian’s $500 bought more than 20 shares. In fact, the Nasdaq fell so far that at one point Brian’s $500 was buying nearly 40 shares a month!

And lucky for Brian, he kept buying those discounted Nasdaq shares for more than a decade. Accumulating 20 and 30 shares per month started paying off handsomely when the index finally climbed out of its hole. By the time the Nasdaq recovered to the old highs in 2015, Brian had been able to buy so many shares at a discount that his $93,000 of invested principle was worth $204,000! The index was flat, but amazingly Brian was up 120%!

And it didn’t stop there. Brian kept plugging away and just a few years later, Brian’s $500 per month in 2018 is now worth more than $300,000! Not bad for someone who started investing at the worst time imaginable.

What can we learn from Bad Luck Brian’s? Instead of fearing dips, we should embrace them. Rather than pull back on our contributions, we should double them.

Currently, the stock market is down 15% from the highs and people are running around scared. While they are afraid prices could fall even further, I’m over here wishing we could be that lucky. Bring on those cheap stocks!

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Oct 23

CMU: How much worse will this get?

By Jani Ziedins | End of Day Analysis , Free CMU

Free After-Hours Update:

Tuesday was another ugly open for the S&P 500 as overnight weakness in Asia and Europe pressured our markets. We crashed lower at the open and undercut this selloff’s prior lows near 2,710. But rather than trigger another avalanche of defensive selling, that early dip was as bad as it got. Supply of nervous sellers dried up after the first hour of trade and we recovered a majority of the losses by the close. Not very often does a 0.5% loss feel like a good thing, but that is what happened today.

Even though Trump’s tariffs haven’t done much harm to our economy, they are strangling the already weak Asian economies, most notably China. While this is Trump’s desired outcome, global markets are more intertwined than ever and what huts one is felt by everyone else. By taking down China, Trump is indirectly taking down our markets.

The biggest question is what comes next. Is the worst already behind us? Or are we on the verge of another tumble lower? I wish I knew for sure, but the best we can do is figure out the odds and make an intelligent trade based on the most likely outcome. For that, a look back at history is the most logical place to start.

The above chart shows pullbacks in the S&P 500 from all-time highs since January 1950. That gives us nearly 70 years worth of data to analyze.

One of the most notable things is how rare big selloffs really are. Over the last 69 years, only 11 times have prices tumbled more than 15% from the highs. We often think of big crashes like 1987, the Financial Crisis, or the Dot-Com bubble. But those events are exceedingly rare. All the other pullbacks over the last 69 years have been 15% or less. While 15% is a lot, it isn’t terrifying. And even better, all of those under 15% pullbacks were erased within a few months. Small and short. That sounds like something we can live with.

Currently we find ourselves 7% from the highs. Those losses are already behind us and we cannot do anything about them. But we can prepare for what comes next. Assuming we are not on the verge of another Financial Crisis or similar catastrophe, the most likely outcome is a dip smaller than 15%. From current levels, that is another 8%. But that is the worst case. The actual dip will most likely be smaller than 15%.

Over the last 69 years, the S&P 500 has tumbled between 10% and 15% 22 times. That’s about once every three years. Not unheard of, but not common either. The last pullbacks of this size were 15% in 2016 and 12% earlier this year. Are we due for another one? Maybe. But it definitely doesn’t seem like we are overdue given we already had two over the last two years.

More common are pullbacks between 5% and 10%. There have been 36 of these over the last 69 years, meaning these happen every year or two. From 7%, that means we could be as little as 1% or 2% from the bottom. And even better is most of these 15% or smaller pullbacks return to the highs within a few months.

We are down 7% and there is nothing we can do about that. But going forward we have a decent probability of only slipping a little further. And assuming the world doesn’t collapse, worst case is another 8%. While that wouldn’t be any fun, is that really worth panicking over?

The price action has been weak the last few days and that led to today’s weak open. And the market loves double-bottoms, meaning we could see a little more near-term weakness. But what is a little more downside if we will be back at the highs in months month? While I cannot say the bottom is in yet, the odds are definitely lining up behind buying this market, not selling it.

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Sep 05

CMU: To be a successful trader, don’t be like this guy

By Jani Ziedins | Free CMU

Cracked.Market University

Put yourself out there long enough and inevitably you run into the angry cynics that try to knock everyone down to their level. Rather than learn from the people who are more successful, these people criticize everyone doing a better job. That is their natural ego defense. When they cannot do something, they automatically assume everyone else doing it successfully must be a cheater and fraud.

I’ve had more than my share of hecklers over the years and I learned to ignore them a long time ago. But the comments I got the other day are great examples of the wrong way to approach the market. I wanted to share this with other readers so they could learn from them and avoid making the same mistakes:

This guy is a 100% jackass. A few months ago he was encouraging to “take profits” and now he’s saying “told you so”. Complete blowhard, waste of space. People like this need to disappear.

I will call you out again. Your blog is horseshit, always has been. Here you say “take profits” and previous blog “we are going much much higher”. This way you’ve covered both your bases..if it goes up, you say I told you so, if it goes down, you remind to take profits. Utter bullshit and this is what i would expect from a paid service. A self important blowhard who speaks from both sides of the mouth without committing to one or the other. Please, go into a cave and save us the trouble from reading this garbage.

The first thing I want to acknowledge is I have complete control over this blog and could easily delete negative comments like these. But that’s not who I am and I definitely don’t shy away from criticism. Instead, I embrace it. I leave these critical comments for everyone to see, even when I disagree. Recognizing a difference of opinion is always useful when trying to understand how other people think about the market. This is a zero-sum game and my profits come out of someone else’s pockets, just as his profits come out of mine. Understanding how the other participants think is a very valuable tool when figuring out what to trade next.

I don’t know who this guy is and I don’t care. I’m not going to cyber-stalk him and I don’t want anyone else to either. We’re traders, not bullies. In fact, we should thank him for giving us these great examples to learn from. Even though I don’t know anything about him, there are quite a few things we can learn by analyzing his comments.

This guy is definitely angry. Between the swear words and personal attacks, he is directing a lot of negative energy toward me. If there is one thing I noticed in all my years of trading, people who are making money are in a good mood. They don’t kick their dog and attack random people on the internet. If anything, people having a good year are far more likely to brag obnoxiously about their good fortunes than criticize other people. (A great topic for a future CMU post. Subscribe to Free Email Alerts so you don’t miss it.)

If this guy is angry, it is safe to assume he is losing money and he is looking for someone to blame. He mentioned what I wrote a few months ago, so it appears he has been reading my free blog for a while. That also tells me he is relatively inexperienced since most professionals come up with their own trading ideas, they don’t browse the free educational blogs.

Last week the stock market made all-time highs and everyone invested in this market is loving the ride. What that tells me is my heckler sold this strong market months ago and is bitter because it left him behind. And if it wasn’t already obvious, he made it clear when he criticized me for suggesting traders “take profits” during one of the market’s numerous up-waves this spring and summer.

I’ve seen this often enough to know exactly what happened. This guy was cynical about the market and was looking for an excuse to sell. He read my blog post suggesting people take profits and that is all the encouragement he needed to bailout. Unfortunatly for him, that is only half the story.

I’ve been buying weakness and selling strength all year. While the market is up a very respectable 10%, I’m up a lot more than that selling each surge higher and buying the inevitable dip that happens a few weeks later. Do that with leveraged ETFs and a good year becomes a great year.

The problem is this guy followed my advice to take profits, but that is where he stopped listening. Rather than buy the next dip, his bearish bias took over and he refused to jump back in. He missed the rebound and the higher the market went, the more bitter he became. But rather than acknowledge and correct his mistake, he decided he wanted to blame someone else. This time it happened to be me.

I don’t mind. It is been a good year for me and I’m definitely one of the traders that is in a good mood. There isn’t anything he can say that bothers me. The only reason I even acknowledged his unjustified accusations is to share his story so the rest of my readers could learn from his mistakes.

First lesson: Never get emotional about the market. Losses are a part of this game and are no different than inventory expense for a retailer. As long as we make more money than we lose, everything is good.

Second lesson: When things don’t go well, be honest with yourself and don’t blame other people. If you lost money, it isn’t Trump’s fault. It isn’t some CEO’s fault. It isn’t the Fed’s fault. Or some blogger on the internet. You and only you made that decision to place a trade. Own up to it and take responsibility. Sometimes things don’t work out and that is just the way it is. Learn from your mistake and move on.

Third lesson: Respect and learn from everyone around us. There are traders with a lot of experience willing to share their knowledge with others. Hecklers stroking their fragile ego by putting down other people will never get better. (But to be brutally honest, I don’t mind. My profits need to come from somewhere, so it might as well be their pockets.)

And just to remove any doubt about this heckler’s accusations, I charted the various calls I made this year. How did I do? (Subscribe to Free Email Alerts so you don’t miss any more calls like these.)

January 25th: “Enjoy this rally higher over the near-term, but stay alert and keep close to the exits.”

January 27th: “there always comes a point where we run out of buyers. And it looks like we reached that point last Friday”

February 5th: “For those of us that took risk off the table during this run-up and have cash to spend, this dip is extremely attractive.”

February 9th: “Risk is a function of height and this is the least risky point in several months. Traders should be embracing these discounts, not running from them.”

March 6th: “we should expect a lot more volatility over the near-term as the trade war rhetoric ramps up. We will likely see further weakness over the next week.”

April 3rd: “Even though prices could slip a little further, this is still a very attractive place to be buying. We were asking for a dip and the market gave it to us. Don’t lose your nerve now just because everyone else is freaked out.”

April 24th: “If this market was going to crash, there have been more than enough excuses to send us tumbling a long time ago. Instead of selling these bearish headlines, confident owners are holding for higher prices. When owners don’t sell bad news, it stops mattering.”

June 12th: “Things still look good for our medium-term stock positions and long-term investments and we should leave them alone, but for short-term swing-trades, this is a better place to be taking profits than adding new money.”

June 28th: “Two-weeks ago we should have taken profits into that strength and this week we should be buying the subsequent dip. Everyone knows markets move in waves, so get with the program and trade the waves!”

August 9th: “The risk/reward has shifted against us and this is now a better place to be taking profits than adding new money…..we cannot buy the next dip if we don’t have any cash. Buy weakness, sell strength, and repeat until a good year becomes a great year.”

August 14th: “While it already looks like the Turkish selloff is dead, we need to hold this bounce for a few more days to be certain. There is a chance this bounce could fizzle and we continue slipping back to 2,800 support. If that happens, that will be a far more attractive entry point.”

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Jani

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Apr 04

CMU: Are you addicted to stock quotes?

By Jani Ziedins | Free CMU

Cracked.Market University

One-hundred years ago a person was lucky if they could find weekly stock quotes. Fifty-years ago most traders lived off of daily quotes from the newspaper’s financial section. Thirty-years ago we got 24-hour news networks. Twenty-years ago the internet gave us 20-minute delayed quotes. Five-years ago real-time and after-hours quotes came free with most trading accounts. And now countless phone apps give us access to global stocks and futures around the clock.

The question few are asking is if this abundance of information is actually helping the average investor? Given the success rates of the typical retail investor, the answer is clearly not. The question then becomes if this is not helpful, is it actually hurting investors? There is a pretty compelling case that information overload causes a person to make more mistakes, especially when it comes to something as tricky as the market.

Who among us hasn’t found themselves transfixed by an intraday move? We get an alert on our phone and stop what we were doing to read the linked article. Then we tune the TV to the financial news to find out what the “experts” think. All of a sudden we went from having a good day at work to being worried the latest selloff means will delay our retirement five years. But we won’t be innocent bystander. We won’t be a victim to the market’s wrath. Instead we take control of our financial destiny by whipping out our phone, logging into our brokerage app, and start selling. And best part is we do it all in the five minutes before our next meeting.

Unfortunately what started the day as a buy-and-hold investment quickly turned into a “sell everything before things get worse”. The problem for most long-term investors, turned spur-of-the-moment traders is that over the last 30 years, there have only been two instances when “sell now before things get worse” was actually a good idea. The 2000 dot-com bubble and the 2008 financial crisis. Two and only two times over the last 30 years was reacting to the fearful headlines a good idea. Compare that to the 1,000+ plus phony stock market crashes that spooked investors out perfectly good positions just before rebounding. Would you rather put your money on the 499, or the 1? Unfortunately most retail investors are so afraid of the next stock market crash that they have an irrational fear it is hiding around next corner. Combine those emotions with an endless stream of market headlines and stock quotes and that is the perfect recipe for over trading.

And I will be the first to admit this happened to me. I used to trade newspaper quotes. Buy something, forget about it for a few weeks or months. Check the newspaper and “wow, I just made 20%, cool!” Then the internet revolutionized trading and let me follow the market more closely. But the 20-minute delay kept me from obsessing over it too much since the prices I saw were already old news. I’d buy what I wanted to buy and then get on with my day. Then high-speed internet came along with real-time streaming quotes.  Now I could put charting programs and stock tickers on my second monitor (because one monitor definitely isn’t enough), and now I could start counting pennies. It would have been nice if it stopped there, but now my phone gives me access to S&P500 futures around the clock. (speaking of stock futures, they are up nicely in Asia as I write this at 10pm MDT) And the worst of all, if I wake in the middle of the night, it is hard to resist the temptation to see what the futures are doing in Europe. If my trade isn’t working, then I have to pull out my iPad and find out what happened. And people call this progress???

I’ve been there and done that, as have many of you. I can and will attest this most definitely didn’t help my trading. In fact, the access to endless information made me miserable and my trading suffered. These daily gyrations got to me, even small moves against me inevitably lead to second thoughts. Second thoughts lead to doubt. Doubt lead to anxiety. And anxiety lead to impulsive and emotional trading. All of this certainly makes me miss the old days of waiting for the daily newspaper, looking up my stocks, and then spending the rest of the day not thinking about the market.

More is most definitely not better and the addiction to endless streams of information is something we need to resist. Without a doubt the worst thing a person can do is check stock quotes in the middle of the night. Don’t do it. It doesn’t help and all it does is lead to crushing anxiety and sleepless nights. Same goes for getting alerts on your phone. Turn them off. If you are not a day-trader, you don’t need to have real-time quotes and charts on your computer. If you are a buy-and-hold investor, don’t look at daily quotes. Don’t even look at weekly quotes.

The most important thing to regaining control of your trading is only looking at the market with a frequency that is appropriate for your holding period. Retirement accounts? At the very most look at them quarterly and even then only for rebalancing. It would be better if you limited checking retirement accounts to once a year. Swing-traders who hold positions for days and weeks should limit themselves to daily quotes. Only day-traders need streaming quotes and live charts. For everyone else, all it does is shake your confidence and lead to impulsive and emotional trades. The first step to beating the market is getting your addiction to stock quotes under control.

Jani

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