Category Archives for "Free CMU"

Feb 13

CMU: The easiest thing you can do to improve your trading right now

By Jani Ziedins | Free CMU

Cracked.Market University

We come to the market with different experience levels, expectations, and needs. But the one thing all of us have in common is the desire to improve our trading. It doesn’t matter if we are struggling or already pretty good at this, everyone wants to be even more successful than they are now.

The quickest and simplest way to improve our trading is to adjust the way we approach the market. Rather than torment yourself and overthink every decision, ask yourself, “What would a savvy trader do here?”

All too often we fall prey to our impulses and emotions. We love the feeling of a winning trade and don’t want to give up on it. But often that means holding too long and watching those profits evaporate. Or we enter into an online argument that makes us even more stubborn and reluctant to admit our mistake. Or we ignore a loss because regret keeps us hoping the rebound is just around the corner.

All of those common mistakes would have been avoided if a person pictured themself as a savvy trader and then made the same decisions a savvy trader would make.

Does a savvy trader brag about his winnings?

Does a savvy trader lock-in worthwhile profits or does he try to squeeze out every last dime?

Does a savvy trader check overnight futures at 3 am because he is worried about his positions?

Does a savvy trader hold losing positions, hoping they will come back?

Does a savvy trader chase the crowd or does he lead the crowd?

Does a savvy trader stay calm and rational no matter what is going on around him?

Does a savvy trader allow a poor trade to affect his mood outside of the market?

Does a savvy trader get discouraged following a loss or does he realize losses are inevitable and calmly move on to the next opportunity?

If you look back at all of your biggest losses, chances are you didn’t do what a savvy trader would have done in that situation. This simple exercise could have saved you a lot of money and heartache. While you cannot do anything about your previous mistakes, it is never too late to use this technique to improve all of your future trading decisions.

None of us are perfect, but it helps us if we aspire to be that perfect trader. Every time you find yourself faced with an important trading decision, ask yourself “What would a savvy trader do here?” Chances are, that is the move you should make.

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

Feb 10

CMU: Is the market rigged?

By Jani Ziedins | Free CMU

Cracked.Market University

Spend any time with retail investors and it is almost guaranteed you will hear someone will complain, “the market is fixed.” This is one of the public’s most persuasive myths about the stock market. These people are convinced there is an evil puppet master rigging the system against hem.

My question to these cynics is always, “If you know the market is fixed, why would you do something so stupid as trading against it?” If they know for a fact big money is going to buy every dip, why would they do anything other than buying every dip? Don’t complain, take these valuable insights and profit from them! Complaining about it makes no sense.

In all honesty, I wish the market was fixed. That would make this so much easier. If there was a puppet master pulling the strings, all I need to do is figure out what his intentions are and follow along. Pilot fish swim behind sharks and live off the scraps. I’d be thrilled making a living as a pilot fish following the market manipulators and profiting from their leftovers. Unfortunately, there are no sharks controlling the market for me to team up with.

People think big institutions, high-frequency traders, hedge funds, and even the Fed is conspiring to ruin their trades. But if you spend any time reading the financial press, it doesn’t take long to realize these big institutions and hedge funds struggle with unprofitable trades just as much as we do. If these big players were rigging the system against us, don’t you think they would be making a ton of money? The brutal truth is 75% of professional money managers fail to even keep up with the dumb indexes every year. If these big players are manipulating the market, they sure don’t do a very good of profiting from it.

To be perfectly frank, what people really mean when they claim the market is fixed is, “I lost money and I refuse to take responsibility for my poor trading decisions”. Don’t be that guy! Take responsibility for your bad trades. Own up to them. Learn from them. And most importantly, don’t blame them on anyone else.

Just because your trade didn’t work doesn’t mean someone is out to get you. It simply means you didn’t understand all the factors at play. Learn from those mistakes and do better next time. Victims blame other people, don’t learn from their mistakes, and never succeed in this business. Don’t fall into that mindset.

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

Feb 06

CMU: Always have a plan to take profits, TSLA edition

By Jani Ziedins | Free CMU

Cracked.Market University

As I wrote Monday, I like mixing the topic of these posts up a bit more but it is hard to ignore what is going on with TSLA. Not very often do we have the opportunity to witness one of these things blowing up in real-time and be able to dissect it as it happens.

In case you are living under a rock, TSLA had the biggest two-day run in the stock’s history earlier this week, at one point surging nearly 50% from Friday’s close. But as expected, that rate of gains was not sustainable. And not only did the rate slowdown but now it appears like the bubble burst. Wednesday the stock crashed, giving up the majority of those gains in a single session. Thursday’s rebound attempt was valiant but ultimately unsuccessful.

The reason I’m writing this post is because when trading, it is essential we always have a plan to take profits. If someone was fortunate enough to be in TSLA on the way up, great for you. But if you don’t act, it will all be for naught. If we are in this to make money, the only way we do that is by selling our biggest winners.

All too often people get caught up in the moment and start believing the hype. They know something other people don’t. That history doesn’t apply to this particular situation. While part of them deep down knows they should be taking profits, they are so afraid of missing out they cannot bring themselves to do what needs to be done.

Unfortunately for most of the people involved in TSLA’s staggering move this week, everyone who rode it all the way up is now riding it all the way down. As unbelievable as this sounds, at one point Thursday nearly everyone who bought TSLA shares in the best week of the stock’s entire history was sitting on fairly sizable losses. As my dad always liked to remind me after screwing up, easy come easy go.

And I wish I could say the worst was over. Unfortunately these things are even more spectacular on the way down. The market likes symmetry and the fall will be just as jawdropping as the rise. Expect this to go far beyond what anyone thinks possible. Just ask Bitcoin bulls how bad it got after that cryptocurrency fell from its parabolic highs. While I don’t expect the same magnitude of collapse here because Tesla is a real company with real value behind the stock, it will get shockingly ugly before this episode is over.

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

Feb 05

CMU: Lesson 2: Trade proactively, not reactively

By Jani Ziedins | Free CMU

Cracked.Market University

This post continues the series expanding on of my 23 Trading Rules.

Lesson 2: Trade proactively, not reactively.

That sounds easy enough but the truth is very few people actually trade this way. Our natural instinct is to follow the crowd. We can blame this tendency on our ancestors. When everyone else was running away screaming, the guy who stuck around to see what all the fuss was about quickly turned into lion food. Those that ran instinctively alongside the crowd lived longer and passed their genes along to the next generation.

While those survival instincts worked great on the African savanna, they are not helpful in the financial markets. In fact, this misplaced gut reaction is the single biggest factor contributing to why so many people wash out of the market every year. These unfortunate traders didn’t survive long enough to learn how to control their natural impulses and they ended up falling victim to the market’s cruel tricks.

No doubt I’m preaching to the choir because anyone with even the smallest amount of trading experience knows what I’m talking about. We’ve all been guilty of it at some point. And if you claim it never happened to you, either you are a liar or your brain is miswired!

Running when everyone else is running is reacting to what the crowd is doing. So is getting nervous and scared and when everyone else is nervous and scared. Other times the crowd infects us with optimism and greed. No matter what the crowd is doing, it is nearly impossible to not at least feel the tug of those same urges.

If reacting to what the crowd is doing is the wrong way to trade, what is the right way? Easy, do the opposite. Get ahead of the market by moving proactively. Rather than wait to sell until after prices tumble from unsustainable levels, bailout while everyone else is still in a good mood. Instead of panicking when everyone else is selling, recognize the value of those irrational discounts and start buying what the crowd is selling. Rather than chase prices higher, buy before it is obvious to the crowd.

While it is nearly impossible to deny our emotions, the best way to manage them is by drafting a trading plan when nothing important is going on. When the market is boring you to tears, spend that time planning what you will do when it stops being boring. What price move would convince you to buy? What would convince you to sell? When will you take profits? When will you admit defeat and pull the plug? Write those things down and commit to acting on that plan before the crowd starts pressuring you to react. That way when you feel the urge to join everyone else running away, you pull out your plan and use those premeditated decisions to overpower your natural impulses.

It’s an overused market cliche but few things are more important to long-term success than  “planing your trade and trading your plan.” Stay ahead of the crowd and you will be far better off than everyone else reacting impulsively to every bump and gyration in the road.

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Tags: CMU $SPY $STUDY

Jan 29

CMU: How to make money when your gut is wrong

By Jani Ziedins | Free CMU

Cracked.Market Univerity:

I will be the first to admit my gut isn’t always right about the stock market. Sometimes I overthink a situation or assume a move has more potential than it really does. Regardless, if I traded exclusively on gut feel, I would have a lot less money than I do. My secret weapon? Planning my trades and sticking to my plan. It doesn’t get any more straightforward than that.

Every time an opportunity arises in the market, look at it and ask, “what would take to get me to buy this?” Moments after answering that question, ask yourself the follow-up, “okay, if I’m in, what would it look like if I’m wrong?”. Answer those two simple questions, follow through on those commitments, and you will be miles ahead of almost everyone else who trades stocks.

Let’s look at a few recent examples where my gut was wrong but my trading plan got it right. Back in December, TSLA moved to the upper end of its trading range. While my gut is reluctant to believe TSLA is the second most valuable car company in the world, the stock was at an important inflection point. Either it hits its head on resistance like it has done so many times over the last several years. Or it smashes through resistance and keeps on going. While my gut was cynical, my trading plan said to buy $TSLA above $390 and stick with it as long as it stayed above this level. Here we are nearly two months later and the stock is up almost 50%.

Gut 0 – Plan 1

Bitcoin is another one I don’t trust. I even wrote a post last year questioning its viability after the $10k rebound tumbled back under $7k. But you know what? I was wrong. Instead of tumbling back to the lows, Bitcoin rebounded and retook $7k. My trading plan said that level was the line in the sand and no matter what my gut felt, as long as Bitcoin was above $7k, I had to give it the benefit of doubt. Here we are a few months later, up 35% and pushing up toward $10k again. While I still question the viability of Bitcoin over the long-term, it has been trading well over the short-term and there was only one way to trade it after it retook $7k.

Gut 0 – Plan 2

And lastly, this week’s Coronavirus tumble. I like taking some profits proactively and keeping a trailing stop on the remainder of my winning positions. That discipline meant I locked in profits when the S&P 500 was above 3,300 and had a lot of cash ready to buy this week’s dip. That said, I was a little nervous along with everyone else when the market gapped 1.5% lower Monday morning. Most of the time these emotional selloffs get carried away and go far further than anyone expects. My gut was hesitant to buy Monday’s early bounce because I feared another waterfall selloff, but my trading plan told me to buy the bounce and protect myself with a stop under the opening lows. While it didn’t feel good, this was my plan’s entry point and keeping a stop nearby limited my risk. It was a very good entry even if it didn’t feel good. And here we are a few days later, well above that entry point.

Gut 0 – Plan 3

No one can correctly predict the market’s every move, but if we plan our trades intelligently and stick to that plan, we will do a lot better than most.

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

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

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