Category Archives for "Free Content"

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

The right way to buy this rebound

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

The following is a brief excerpt from the Premium Analysis email I delivered to subscribers today during trading hours and builds on Friday’s free post. Since this covers exactly what I wanted to write about this evening, why recreate the wheel? If you like what you see, have this and more delivered to your inbox every day during trading hours while there is still time to act on these insights.

The S&P 500 popped this morning and is inched toward 2% gains. What was the source of this strength? Well, if we go strictly by the biggest headlines, it is the ever-expanding Coronavirus epidemic and the voting mishap in Iowa. Those seem like strange headlines to rally on but that is exactly what we got.

Obviously the market isn’t rallying because of those headlines. But more importantly, we can say the market is rallying despite those headlines. Traders are shrugging off news that very easily could have sent us tumbling under the lows again. Instead, most people are choosing to ignore the noise and are buying stocks anyway. The encouraging sign is there are few things more bullish than a market that refuses to go down on bad news.

Granted, this is only the second day of this rebound attempt and it is definitely premature to claim the selloff is dead, but this is definitely a good start. If this market was fragile and vulnerable, today’s headlines were definitely bearish enough to send us lower. Instead, prices bounced and that tells us this market wants to go higher, not lower.

The market looks great, unfortunately, anyone who waited for the clouds to clear missed a lot of this week’s discounts. And more than just paying higher prices, these gains expose late buyers to the increased risk of an intermediate dip. The best buys always come when uncertainty is at its highest. Throwing some money at the market Friday afternoon and yesterday morning was tough, but those smart buys gave us 1) good entry points, 2) the safety of nearby stop-losses, and 3) a fair amount of profit cushion to ride out any near-term undulations.

As always, the best plan is to start small and add to a position only after it starts working. A small buy on Friday afternoon was followed up by another position Monday morning. Do that and we are in good shape to add a little more today. The challenge with today’s purchase is the sensible stop-loss is all the way back at yesterday’s close. Not ideal, but we have to take what the market gives us. At least the prior profits give us some padding to cushion against any near-term gyrations.

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

Why TSLA is going to be like TSLA

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

Normally I like to mix the subject of these free posts up a bit, but TSLA keeps dominating the headlines and it is hard to ignore what is going on over there.

Shares exploded 20% today and you’d think the company made a huge breakthrough. Nope. An anonymous analysist upgraded the stock. While an upgrade is definitely better than a downgrade, the thing to remember about analysts is if they knew how to trade, they wouldn’t be an analysists. Think about that the next time you feel the urge to trade based on their opinions.

As for my opinions, I got a fair amount of criticism for my post last week when I said people need to be careful chasing TSLA at these levels. While I’m sure my critics are strutting around today, this pop doesn’t change anything. This is an incredibly dangerous place to be buying the stock and I have no doubt it will end in tears for many people.

I’ve been doing this a long time and could cite countless examples from WMT, MSFT, PALM, AOL, BB, Oil, Gold, Bitcoin, or any of the thousand other investments that made explosive moves. But if I did, no doubt my critics would complain that TSLA is different. Okay fine, I can work around that. Let’s compare TSLA to TSLA.

TSLA came public in 2010 at $17 and obviously it’s been a great ride since then. But it hasn’t been all up. In fact, there has been a whole lot of down along the way. Everyone knows the market moves in waves, but somehow they always forget that basic fact when the market is at the top and the bottom of a wave.

Last year people were writing TSLA’s obituary. Now we have other people claiming it will take over the world. Who is right? Easy, neither! Don’t fall for this extreme thinking. In fact, when the extremists take control of the conversations is when we need to be the most afraid.

In the attached chart, you see the five different occasions TSLA stock fell nearly 40% and on three of those, the losses exceeded 50%. Owning a stock that’s tripled over the last few months is great, but don’t mistake serendipity for skill. Remember, if we are in this to make money, the only way we do that is by selling our favorite stocks. While the fools are spending all of their time daydreaming about what they will buy when the stock breaks $1,200, smart money is selling their stock to those greedy dreamers.

As I said in my last post:

Now don’t get me wrong, I’m not calling today a top and I most definitely wouldn’t short something just because it is “too high”. But I do know for certain at some point soon this stock is going to come crashing back to earth and anyone who is patient will be able to buy all the TSLA they want at lower prices.

That is even more true today than it was last week. But feel free to ignore me because without a doubt “this time is different”.

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

How to trade days like this

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis

The following is a brief excerpt from today’s premium analysis that I emailed to subscribers at lunchtime today. This does a good job of explaining how we should respond during sessions like this.

Market Mentor

We always knew this retreat could happen and it shouldn’t surprise us. I liked the mid-week resilience, but that was no guarantee this situation was resolved. But as long as we included this possibility in our trading plan, it won’t catch us off guard and we will respond to it intelligently.

This intelligent and thoughtful response is miles away from the way most people have been trading this situation. Rather than buy early in the rebound when they could keep a sensible stop close to their entry point, they waited until it looked like things were safe and jumped in at much higher levels. Now the market tumbled under their entry points and their positions are in the red. What felt safe at the time turned out to be anything but.  Now many of those same late-buyers are having second thoughts and dumping their stocks for a loss today.

While today’s retreat proves my initial purchase wrong, having a sensible purchase point [near Monday’s lows], appropriate position size [1/3 position], and nearby stop-loss [under Monday’s lows] means any resulting losses will be trivial.

Today’s lows undercut my stops, meaning I’m not out of the market. But rather than give up, I’m already looking for the next opportunity to get in. If today’s weakness proves to be fleeting and is a false alarm, I’ll buy back in and try again. While these whipsaws can be frustrating, the protection against bigger losses while still maintaining the opportunity to profit from the rebound is more than worth it. As long as we are smart about our entries and stops, we won’t lose much from these swings and will be ready to profit from the inevitable rebound.

(All of that said, if the market has an absolutely horrid close this afternoon, I might be tempted to buy a small position just before the close. The lower we go now, the less room we have to fall on Monday, so any selling today actually reduces the risk of holding over the weekend. This definitely counts as trying to catch a falling knife, but if we do it with a reasonable position size, it can be more entertaining than dangerous.)

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

The self-fulfilling prophecy TSLA cannot escape

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

Traders are GooGoo-GaaGaa for TSLA’s latest earnings report, sending the stock surging 10% today. The company blew away expectations by actually making money last quarter! Adding those profits to the previous three quarters and the company only lost $862,000,000 last year. What a relief!

All sarcasm aside, we need to be realistic about both the company and the stock. Traders love this stock and the share price doubled since the third quarter’s earnings report last October. That’s one hell of a performance and no matter what a person believes about TSLA’s future prospects, there is only one way to trade a move like that. Unfortunately, bears cannot help themselves and countless cynics have been absolutely demolished by this strong move higher.

But now I feel the tide is about to turn. These late buyers are going to be the next ones in trouble. The first thing to remember is institutional money managers control the bulk of all money in the stock market. What they say goes no matter what anyone else believes. The challenge going forward for TSLA is institutional managers are a cautious bunch. They’ve been around long enough to know these explosive surges higher never last. Even if they love the company, they won’t chase a move like this. Instead, they wait for the inevitable pullback from these frenetic levels.

What happens next is a bit of a self-fulfilling prophecy. The majority of big money managers avoid what they think is an unsustainable move. And when enough of them do that, eventually the retail investors run out of money and bears finish covering their shorts. Once that happens, supply dries up and prices tumble.

The above most definitely isn’t a judgment on the company’s financials or growth prospects, but more a look at the supply and demand cycle that is behind every hot stock. Big money fears heights and they won’t embrace this move until prices cool off. Without their deep pockets, this sharp rally will not stick.

Smart money is taking profits at these levels, not chasing prices recklessly higher. Only fools are buying TSLA above $600 and the thing to remember about fools is they don’t have a lot of money. Expect this stock to cool off very soon. Now don’t get me wrong, I’m not calling today a top and I most definitely wouldn’t short something just because it is “too high”. But I do know for certain at some point soon this stock is going to come crashing back to earth and anyone who is patient will be able to buy all the TSLA they want at lower prices. At the very least, we should expect prices to return to the $500s and even a dip into the $400s is highly likely. I would feel much better buying the company at those levels after this frenzy cooled off.

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

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

The best way to buy this dip

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

The S&P 500 recovered a big chunk of Monday’s losses as fears of a runaway Coronavirus epidemic receed. That said, there were not any concrete headlines supporting this change in outlook, just a wave of dip buyers jumping in and hoping for the best.

The bigger question is if this rebound is the real deal or just another sucker’s rally on our way lower. I wish I could tell you the answer, but predicting the whims of an emotional market is one of the most challenging things to do in the market. But just because we don’t know what the market will do doesn’t mean we cannot trade these swings intelligently.

If a person took profits proactively when the market broke above 3,300 or alternately, used a trailing stops to lock-in profits at this level, they should have cash available to take advantage of this dip. If we don’t know when and where this market is going to bottom, our plan needs to tell us when to act.  Obviously we don’t want to catch a falling knife, so that means waiting for a bounce. But how do when know when the market is really bouncing? Unfortunately, we don’t. That means our plan also needs to include contingencies for being wrong.

While Monday’s gap lower open was dreadful, prices bounced off those early lows minutes after the open. That is considered a bounce and is a great entry point. The biggest advantage is the early lows give us a definitive and close stop-loss level. Buy the bounce and hold on as long as prices remain above the opening lows. Easy enough.

This morning’s bounce also gave us a good entry point. Not quite as nice as yesterday, but we buy the early bounce and keep a stop at yesterday’s close. This entry is less attractive because we are buying at higher levels and the stop is a little further away, but it is still a decent entry with well-defined risk.

Typically we control our risk by starting with a smaller position and only adding money after it starts working. And while we start this trade the same way, this situation is a little more tricky because most of these Chinse headlines come in the middle of the night. That leaves us vulnerable to a dramatic gap opening like we saw Monday morning. For this reason, we might want to hold less risk overnight than we normally do. Or at the very least, acknowledge the increased risk and be willing to hold something that could jump past our stop-loss levels.

While buying the dip in the face of all of these spooky and uncertain headlines feels risky, if we follow a sound plan, the risks are actually quite modest. By the time it “feels safe”, the discounts will long gone, and in fact, the higher prices actually make the “safe feeling” time riskier. Jumping in at the lows with a sensible plan and well-defined stop-loss gives us both protection and profit opportunity. Hard to argue with that.

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

Is the worst still ahead of us?

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

The S&P 500 tumbled for a second day on growing Coronavirus fears. While the odds of a massive epidemic remain very small, the risk is not zero and that is making investors nervous. As high as stocks climbed over the last few months, there was a lot of air underneath us and it doesn’t take much uncertainty to knock down a highflying market.

As I wrote last week, today’s tumble shouldn’t have surprised anyone. While history tells us these things don’t have a lasting impact on stocks, they do make a lot of waves in the moment and we were definitely seeing that today.

The bigger questions is if today was the worst of it. And unfortunately, the answer looks like “no”. These things usually end in a capitulation bottom when the selling climaxes and we exhaust the supply of fearful sellers. Today’s market traded mostly sideways and there wasn’t a lot of aggressive selling. The majority of owners held steady through the rocky open and the lack of new supply prevented prices from falling under the early lows. While this stability felt reassuring in the moment, it leaves many owners at risk of getting spooked out. That overhang means the worst could still be ahead of us.

This morning’s resilient open gave us a great buying opportunity. The early bounce gave us a clear stop-loss level to limit our risk. But if this was going to be a good trade, we would have seen prices climb decisively throughout the day. Instead, the market stumbled into the close. That is never a good sign.

This lethargic close means we probably have lower prices ahead of us. Luckily, most readers of this blog either took profits proactively last week or at the very least used 3,300 as a trailing stop to lock in their profits Friday. Rather than fear this dip, these proactive profit-takers are looking at this dip as a fantastic buying opportunity. Instead of lying awake at night debating whether they should stay in or get out like most investors, these proactive traders are looking at this dip as a fantastic buying opportunity.

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

Does the Coronavirus really matter?

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

Does the Coronavirus really matter? Well, yes…..and no. The virus definitely matters to the people directly affected. It also matters to health organizations and governments. Their quick and decisive action will definitely help slow the spread of this deadly virus. And hopefully, their proactive response will keep this from spreading any further than it needs to.

Aside from the obvious human element, we are traders and we want to know how this will affect the stock market. By this point, everyone is drawing parallels to previous outbreaks and how the ultimate result was inconsequential for stocks. But the important thing to keep in mind is that assessment was only after it was all said and done. The only reason we remember these previous episodes is because they were big deals when we were in the middle of them. And chances are good the same thing will happen this time too.

While there are a lot of bulls arguing with the market dipping a handful of points over the last few sessions, the thing to remember is no one wins an argument with the stock market. Either we go along with it or we get out the way. If this market wants to dip on these headlines, great. Pull the plug on your longs and wait to get back in at lower levels. If you know this won’t last, rather than argue with it, be proactive and profit from it!

As I wrote previously, the greatest advantage we have as independent traders is our nimbleness. If we don’t take advantage of this strength, we are giving up the most important weapon we have in our arsenal. But if we are going to sell, we need to be proactive and do it early. I took a big chunk of profits last week because the market had a good run since December’s 3,200 breakout. These things always move in steps and I like taking at least some of my profits off the table after the market runs to the next obvious resistance level. That said, I did leave some money in with a stop near 3,300 just in case this kept racing higher. One foot in and the other foot out gave me the best of both worlds.

But as expected, the market dipped under 3,300 and I got stopped out of my final position today. I didn’t know what would happen when I planned this trade, I just new odds were good that something was going to come along and knock us down. And that is exactly what happened today.

Now that I’m out of the market, I have a pile of cash itching to get back in. Maybe that happens on Monday when all of this Contravirus stuff blows over and prices rebound back above 3,300. Or maybe the situation grows more grave and stocks dip even further. Either way, I have a plan to get back in. Do you?

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

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

The dangers of thin ice

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

The S&P 500 bounced back from Tuesday’s small dip and so far most owners show zero interest in extending any selloff. That said, we need to remember step-backs are a very normal and healthy part of every sustainable move higher. The fact we’ve gone several months without a meaningful test of support makes me cautious.

Yesterday I saw people criticizing the market for “overreacting” to these Chinese virus headlines. While I agree this sickness is highly unlikely to impact the U.S. economy in a meaningful way, calling a 0.4% intraday slip a “reaction”, let alone an “overreaction”, is definitely a stretch. In most markets, 0.4% barely rises to the level of random noise. These “overreaction” comments definitely give us a sense of just how complacent this market has become when people become incredulous over a 0.4% dip.

The bigger question is if bulls struggle to comprehend a 0.4% slip, how are they going to react to a very normal 1% stumble? Or god forbid, a routine 5% or 10% pullback? Making money has become so easy people have forgotten what “normal” really looks like. At this point, traders are so complacent something totally benign could send shockwaves tearing through the market. While at this point talk of a 5% or 10% correction sounds extreme, these things happen all the time and nearly every year on record experienced at least one 5% pullback. When the inevitable eventually happens, I expect to hear all kinds of apocalypse predictions because compared to what we’ve seen over the last few months, it will feel like the end of the world.

All of that said, the market is still acting really well and there is no reason to alter our plans just because something could happen. We are definitely skating on thin ice, but the thing to remember about thin ice is it only dangerous if we fall through. Until that happens, expect the good times to keep rolling.

I’m definitely not calling this a top and am still long in my personal trading account, but I do know that when we hit the rocks, there is the potential for a big reaction. There is nothing to do right now other than remain alert. While it is tempting to become cynical, remember, this is still the less likely outcome. The only reason to even concern ourselves with it is if it does happen, it will be big. Remember, the greatest strength we have as little guys is our nimbleness. We don’t need to predict the future when we can simply ride this wave all the way to the edge and then hop off just before the fall.

That said, we don’t need to be fully invested at these levels. It has been a good ride, but this is definitely a better place to be taking profits than adding new money. Keep moving your stops up and consider taking some profits proactively. Once the market consolidates some of these gains, we can start looking at adding more. And if the market falls through the ice, that will present us with the best shorting opportunity in a long time.

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

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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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

The mistake traders made in TSLA

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

I normally let more time pass before writing about a company again in these free blog posts, but TSLA’s price action has been dramatic enough to warrant a second post. After surging 10% in a single day, I told readers earlier this week, “it would be both foolish and reckless to chase the stock at these levels.” And wouldn’t you know it, in less than three days the stock gave back all of those gains when it opened this morning.

Now I want to be clear, I am in no way a TSLA bear and am most definitely not calling Tuesday a top. But I do know the market and radical surges like TSLA experienced over the last few weeks are most definitely not sustainable. This was a frenzy of breakout buying and short-covering, not systematic, rational, and sustainable buying.

Momentum traders and shorts losing money were jumping over each other trying to buy this stock before it went any higher. But the thing to remember about breakout buying and short-covering is both of these groups are not buying the company for fundamental reasons. They are chasing momentum. And more than just that, both groups of buyers don’t have a lot of money. They quickly move all-in (or all-out in the shorts’ case) and then they’re out of money. Once they trade, their opinion stops mattering and the wave of buying that fueled the explosive breakout evaporates.

This implosion of demand is further compounded by institutional investors’ aversion to chasing prices higher. Even if they like the company, they know these surges fizzle and they will be able to buy at cheaper prices if they are patient. And in a bit of a self-fulfilling prophecy, when institutional investors wait for lower prices, that creates a lack of demand and prices fall.

So if chasing prices higher Monday and Tuesday was a mistake, what was the right way to trade this? If we wanted to buy the breakout or cover our shorts, we should have done this long before the move became obvious to everyone. In this case, when TSLA initially broke through the old highs near $390. Buying at this point allows us to get in early and more than just that, it gives us a sensible stop near current prices that will limit our losses if we are wrong. And rather than recklessly chasing prices higher earlier this week, we would have been cashing in our profits and looking for the next trade.

As for what’s next, I like the way the stock bounced back today, but I need to see more to be sure. Maybe I will write about this stock again in a few days after it gives us more information about its intentions.

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

The savvy time to buy this market and what to do now

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

Two weeks ago I wrote the blog post “Why January’s start is so bullish“. The market reflexively dipped after the U.S. killed an Iranian general and that initially put traders on edge. But rather than extend the selling, most owners shrugged off the headlines and snapped up the discounts. That morning’s dip tested 3,200 support and here we are nine days later, challenging 3,300 record highs.

I will be honest, on January 1st I was skeptical the one-way rally since the October lows could continue, but as soon as I saw the way the market reacted to the general’s killing and the subsequent attacks on U.S. airbases, I knew this was a strong market and prices were still headed higher. We don’t need to be able to predict the future if we know what clues to look for.

But that was then and this is now. The easy buy was two weeks ago when the market bounced decisively off 3,200 support and never looked back. But now that we are nearly 100 points higher, the risk/reward looks far different. Without a doubt, buying now would “feel” a lot easier than buying in the face of an escalating military conflict in the Middle East, but doing what feels good in the market rarely works out. In fact, we should be edging in the opposite direction, rather than buying this surge to the highs, we should be looking for opportunities to take profits. Anyone savvy enough to buy last week’s dip should be moving their stops up and even considering taking some profits proactively. If we are in this to make money, the only way to do that is by selling our winners.

As for what comes next, there are two ways the market approaches 3,300. Either the buying accelerates and we race toward a climax top, or the rate of gains stalls and we consolidate recent gains. If a person wants to hold for further upside, make sure you move your stops up when we cross 3,300 so your profits are protected. As for the most balanced approach, it makes sense to take some profits and let some ride. If the market continues higher, it is always easy enough to jump back in.

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

How to handle AMZN ahead of earnings

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

AMZN finds itself at an important inflection point. While its FAANG peers AAPL, FB, and GOOGL are busy making record highs and NFLX is constructively digging itself out of the hole it fell into last year, AMZN has kind of been stuck in neutral without a clear sense of direction. We got a really nice pop a few weeks ago when Amazon announced record holiday sales but no further details were given and we have to wait until earnings at the end of the month to learn what “record holiday sales” really means. Since that initial pop, the stock has been mostly holding under $1,900 resistance as traders wait to see what comes next.

I was a big fan of buying NFLX’s dip last fall because after a few months of relentless selling, the stock became oversold the crowd had given up hope and it reached a capitulation bottom. It had finally got “so bad it was good”. But I don’t see the same capitulation in AMZN’s recent consolidation. This is more of a rounding out and it really hasn’t tested investors’ resolve the same way the NFLX dip did.

That said, the stock is still above the far more significant 200dma and that is constructive. Remain above this moving average and the stock is doing well enough to earn the benefit of doubt. But if we fall under this level over the next few weeks, that dramatic capitulation drop could be just around the corner. But just like any good capitulation point, that will be our opportunity to jump in, not bailout.

I won’t pretend to know what AMZN’s earnings will look like when they report at the end of the month, but whichever direction the stock moves in the days after earnings, expect that to be the start of the next big move. Thrill investors and AMZN will return to the highs. Disappoint and new lows are ahead of us. In the meantime, I would be wary of holding too much AMZN. At this point, the risks seem larger than the reward. Wait for that definitive move after earnings and then place your bets. It is better to be a little late on this trade than a lot early.

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

Is it too late to buy TSLA?

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

You have to be living under a rock if you haven’t heard how hot TSLA is right now. The buying frenzy got so heated today the stock surged 10% in just a few hours. What triggered today’s excitement? Some no-name analysist raised his price target. (The important thing to remember about analysists is if they could trade, they wouldn’t be analysists. Think about that next time you are tempted to follow their advice.)

If only we could have seen this surge coming before it happened. Oh wait, we did. Back on December 19th, I told readers to expect something big out of TSLA as it challenged resistance that has been holding the stock back for nearly two years. Either the stock was going to smash through resistance, or it was going to get beaten back for the umpteenth time. Either way, this represented a golden trading opportunity. I suggested readers consider buying the stock above $390 and shorting it if it fell under $390. It doesn’t get any more straightforward than that.

That said, this trade turned out even easier than I expected. I figured the stock would stall at resistance for a little while before making its decisive move. Nope, it was in too much of a hurry. It smashed through $390 resistance and never looked back, making a quick 35% for anyone who was paying attention and willing to take the risk.

But now that the stock is 35% higher, would I consider buying it here? No way in hell!!! Risk if a function of height and this stock is freaky scary at these levels. I don’t care about the company’s fundamentals or any of that stuff, but I know trading and crazy surges like this are not sustainable. Expectations have gotten so high, it would be nearly impossible for the company’s earnings report to exceed them and send this stock even higher. We buy when everyone doubts the stock, not when it is making front-page news across the entire internet.

If a person was lucky enough to jump aboard this bandwagon last month, don’t get caught up in the hype. At the very least, form a plan to get out. Whether that is taking profits proactively or following the stock higher with a trailing stop. Or even better, a little bit of both. And even more important, if someone missed this move, it would be both foolish and reckless to chase the stock at these levels. If you missed it, you missed it. Don’t worry about it. Another trade with a far better risk/reward will be along any minute.

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

Where are bitcoin prices headed next?

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis

Bitcoin rallied nicely late last week and retook the $8k level. This is the first time since November the cryptocurrency has traded this high. This latest bounce inevitably leads us to the more important question, where are prices headed next?

The most obvious place to start is the attached chart. You don’t need to be a Certified Master Technician to see the problems with Bitcoin’s chart. On multiple timeframes this currency is experiencing a strong downtrend, most evident by the clearly defined pattern of lower-highs. Last year’s bounce to $10k was impressive and I was cheering for it the entire way, but at this point, it looks like that rebound ran out of energy and every subsequent bounce has been lower and lower. The biggest point of concern is in the mid-$6k range. This is where Bitcoin prices collapsed last time. We still have a bit of a buffer, but things could get real ugly if we return to this critical tipping point.

Bitcoin is setting up for a nice trade here. Hold above $8k and everything is great. But if support fails, look out below. The most obvious way to trade this is buying a move above $8k and shorting a dip under it. While this strategy will inevitably lead to a few whipsaws along the way, no doubt the next big move will start from here and it could go in either direction. I don’t mind getting whipsawed a little over the near-term if it means I will be in prime position to catch the next big move. The best way to manage these nuisance whipsaws is to start small and only add to your position after the trade starts working.

All of that said, given this sickly looking chart, if I were forced to choose, the most likely next move is lower and chances are good prices will undercut last year’s $3k lows. The only hope this has over the near-term is if we break through $12k and end this pattern of lower-highs for good.

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Tags: Bitcoin BTC.X

Is NFLX still a buy?

By Jani Ziedins | End of Day Analysis

Free After-Hours Update

NFLX has been struggling for six months to recover from its disappointing earnings report last summer. That said, it looks like the worst is behind it and the stock is well above its September lows. In fact, it doesn’t have far to go before it recovers all of last year’s selloff. Now that things are finally looking constructive for the stock, the bigger question is if it is still a buy at these levels.

I’ve been bullish on NFLX for a while. Last fall’s selloff was clearly overdone and it reached the point of being “so bad it was good.” Risk is a function of height and the lower we go, the less room we have to fall. Granted, this rule only applies to businesses with a bright future, but if we still believe in the fundaments of a company, every dip presents a buying opportunity. While panicked NFLX owners were busy abandoning their stock at steep discounts last summer, savvy investors were presented with a buying opportunity.

Without a doubt, NFLX was overbought last summer and even meeting expectations was going to be difficult. But once that bubble burst, everything turned around. By the time of the next earnings report, expectations were so low it was easy to beat them and that is why the stock popped. The recent tumble and sour sentiment made NFLX feel like an extremely risky buy, but it was actually one of the safest times to buy the stock in years. The thing to remember is the best opportunities come when other traders are nervous, not when everyone feels confident.

A lot can change in three months. Last quarter’s earnings confirmed NFLX isn’t headed out of business and the stock is dramatically higher. Today’s setup definitely nowhere near as attractive as it was three months ago. But an important thing to realize about the last six months, there has been a tremendous amount of selling in the stock. Nervous owners were abandoning ship and selling to confident dip buyers. Even though the stock is a lot higher than it was near the lows, the current ownership group is far more robust than it was when this selloff started.

NFLX is still a buy here, but as I already mentioned, higher prices mean this is a riskier buy. Trade an appropriate size so if the company reports dreadful earnings in two weeks, the loss isn’t unreasonably large. If earnings are bad, abandon ship and even consider shorting the stock. But if they meet expectations, or better yet, beat expectations, this stock will be making new highs in no time. One negative outcome versus two positive outcomes, I like those odds. There are no guarantees in the market, but this setup is attractive.

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

Why the market rallied today

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

It’s been a dramatic 24 hours for the S&P 500. Iran launched rockets at two U.S. airbases in Tuesday evening, sending futures tumbling nearly 2%. Between the headlines and the futures market’s reaction, it was easy to be concerned for our equity positions on Wednesday. Yet barely 12 hours later, futures recovered those towering losses before the open and the index opened in the green. And it got even better, prices actually rallied to record highs later that afternoon!

While this performance was definitely awe-inspiring and a bit shocking, this resilience shouldn’t have surprised anyone. This was the fourth session in a row affected by headlines from the Middle East. It started Friday, then Monday, and again on Tuesday. What did all three of those sessions have in common? Owners largely shrugged and continued holding for higher prices. Would a fourth day of headlines change anything? Probably not. And that is exactly what happened today. Owners shrugged, supply dried up, and prices rallied back to the highs.

Agree with the market or don’t, but there is no arguing with it. If this market doesn’t want to go down, there is only one way to trade it. Anyone who overreacted to these developments is dumbfounded by the market’s blatant disregard for headlines that “obviously” should have sent stocks crashing. But while those people are busy arguing with the market, others of us are over here making money. I see a market that refuses to go down on bad news and from experience, there are few things more bullish than a market that refuses to go down.

I have no idea how much longer this strength can last, but as long as it keeps doing all the right things, I’m going to stick with it.

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