Nov 01

A smart mistake, a smarter correction, and TSLA to the MOON!

By Jani Ziedins | Free CMU

Free After-Hours Analysis: 

Last Wednesday I slammed the S&P 500 for its dreadful close. Then the index proceeded to show me up by setting three record closes in a row. Funny how that works.

This reversal highlights just how nimble we need to be as traders. We cannot allow ourselves to get hung up on opinions. Even reliable trading signals can lead us astray. (An impossibly high accuracy rate of 80% is still wrong one out of five times!)

Now don’t get me wrong, I’m not suggesting taking risk off the table last Wednesday afternoon was a mistake. In fact, it was the only sensible decision to make. But just because we took risk off the table last Wednesday doesn’t preclude us from adding that money back in Thursday morning when the worst failed to materialize and prices bounced back.

I took my lump Thursday morning and I’m better for it. And even though I lost some money in the exchange, I’m more than happy to pay a small price now to avoid a bigger loss later. Remember, this isn’t about getting every trade right. It is about making more money than we lose. Sometimes that means taking small losses and I’m always fine with that as long as it allows me to be in the right spot at the right time when the big moves happen.

This is also a good opportunity to talk about position sizes. While a lot of people think in binary terms and move all-in and all-out of the market, that often is an expensive approach that magnifies mistakes and compounds regret.

I like moving in partial positions. Start with a quarter, third, or even half position. Only add more if that initial trade is working. If you are wrong, you only lost money on a partial position.

And even more advantageous, this risk management strategy allows us to be even more aggressive with our initial trades. We no longer need to wait for confirmation. Instead, we jump on the first hints of a selloff or bounce. I sold 1/3 last Wednesday afternoon and I bought 1/3 back Thursday morning. While my ego was a little bruised, my trading account hardly missed a beat.

TSLA is positively on fire. Good thing readers of this blog have been hanging on since the $600 bounce off of support and have been moving up their stops up ever since.

This price action is getting downright silly but it usually does with these extreme highfliers. Impossibly high gets even higher and that’s definitely the case with TSLA. As I wrote last week:

Now don’t get me wrong, I am most definitely not a TSLA bull and this looks as sustainable as all those dot-com names back in 2000. But I’m a trader and it doesn’t matter to me where this stock will be five years from now. If it is going up today, I want to be aboard and enjoying the ride. We can worry about all of that other stuff when it eventually becomes an issue. Until then, “don’t worry, be happy.”

Well, last week’s $1k breakout turned into $1,200 Monday and who knows what Tuesday holds. No doubt this will get really ugly at some point, but until then, keep holding for higher prices and lifting our stops. Stick to this simple strategy and we will be sitting on a pile of cash when everyone else is wondering what happened to all of their amazing profits. (Remember, we only make money when we sell!)

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Oct 27

What today’s dreadful close means for the market

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

Wednesday’s session started off innocently enough with the S&P 500 bouncing between small gains and losses. But for those that read this blog regularly, they know how we start doesn’t count for $#!+. The key to figuring out what comes next is always telegraphed in the finish. And unfortunately, Wednesday’s finish was absolutely dreadful.

Now don’t take this the wrong way, this prognosis has nothing to do with the 0.5% loss. Downdays are a very normal and healthy part of every rally higher. And believe it or not, in the right context, even a 0.5% loss can even be a very bullish trading signal. It all comes down to how we arrive at that 0.5% loss. And unfortunately, Wednesday got there in a very, very wrong way.

The last 60-minutes of trade is the most insightful hour of the day because that’s when institutional traders are making their moves. And given Wednesday’s waterfall selloff into the close, those big investors were liquidating shares and locking in profits.

A one-way selloff in the final hour of trade is never a good sign and this late decline was no different. The next challenge facing us is figuring out what comes next.

The most innocent thing would be a modest step back to 4,500 support. Getting above this psychological milestone is where October’s rebound really put it into overdrive. And sometimes all we need is a little near-term give-back to allow everyone to catch their breath. Maybe that’s all this is, a modest exhale.

Or maybe October’s frenzy of dip-buying went waaaaaay too far and this is going to end very badly with a spectacular crash under September’s lows. (Or maybe I’m just reading a bunch of nonsense into a lot of random noise.)

No matter what happens, I’ve been doing this long enough to be wary of this late trading signal and my pockets were overflowing with profits from buying the October bounce, so it made a lot of sense to start peeling off a big portion of my positions. As the saying goes, it is better to be out of the market wishing you were in than in the market wishing you were out.

With a pile of profits in hand and following a really nice run from the October lows, it made sense to take some of those profits off of the table. Remember, we only make money when we sell our winners and this was as good of a time as any.

And you know what? If prices bounce back Thursday, there is nothing that says I cannot buy back in. In fact, buying back in is the exact thing my trading plan will tell me to do tomorrow if the market closes well. If I end up chasing my tail a little in the process, no big deal. I learned a long time ago it is better to be a little cautious than a lot sorry.

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Oct 25

Words of wisdom for those holding TSLA as well as everyone else that missed this great trade

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

All of the headlines are screaming TSLA is now a trillion-dollar company. That’s a huge milestone for the stock and puts it in rarefied air. But telling us about this after it already happened doesn’t help anyone make money. We need to know about these things ahead of time!

Well, it just so happens TSLA was on my radar this summer after it bounced nicely off of $600 support. And I told readers as much back on July 12th:

Far more important is $600 support. Fail that and it could trigger another wave of defensive selling. But until that happens, last week’s bounce just above support is buyable. That said, this doesn’t get real interesting until it gets above recent resistance near $700, but so far, so good.

Well, not only did TSLA get interesting above $700, but it started looking even more fabulous above $800, $900, and now $1,000.

Now don’t get me wrong, I am most definitely not a TSLA bull and this looks as sustainable as all those dot-com names back in 2000. But I’m a trader and it doesn’t matter to me where this stock will be five years from now. If it is going up today, I want to be aboard and enjoying the ride. We can worry about all of that other stuff when it eventually becomes an issue. Until then, “don’t worry, be happy.”

As for what comes next, the risk/reward was stacked nicely in our favor back at $600, but now it has done a 180 and is totally skewed against us. Owners with a huge profit cushion and a big apatite for risk can continue holding to see how much higher this goes, but keep trailing stops nearby because this can fall as quickly as it rose. It would be a real shame to let these really nice profits escape simply because we got too greedy.

And if for those that missed this trade, well, it happens. Chalk it up as a learning experience and let it go. After rallying nearly 70%, there is far less upside remaining and the risks up here are gigantic!

If a person really likes this stock, stay patient, there will be a better, lower-risk entry point. It might not happen next week or even next month, but there are smarter and less risky ways to jump aboard this trade.

Remember, only fools are chasing this stock up 70%. Don’t be a fool.

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Oct 21

If you missed this bounce, use this simple and reliable trick next time

By Jani Ziedins | Free CMU

Free After-Hours Analysis: 

Thursday was the S&P 500’s seventh up-day in a row. Not a bad run from a market that most people, including myself, thought was on the verge of the next lower. But that’s the way this game works. Prices don’t bounce until the crowd has given up on the bounce. And now we are left with a mountain of regretful sellers who are kicking themselves for acting so hastily.

Lucky for regular readers of this free blog, I wrote the following seven sessions ago:

Wednesday’s 0.3% gain counted as a bounce, so I held my nose and bought it. My trading plan told me to add more following Thursday’s strong open, so I bought more. And here I am, holding a nice profit in a trade I didn’t even want to make! This example highlights why we always follow our trading plan, not our gut.

While I didn’t like this bounce initially, I bought it anyway because that is what my trading plan told me to do, and now I’m sitting on a pile of profits. Funny how that works.

I’ve been doing this for a long time and my gut tends to be right more often than not, but every time my gut and trading plan disagree, I always go with my trading plan because it is right far more often than my gut. No surprise an objective, unemotional, thoughtful plan can outperform an emotional, egotistical, and a sometimes irrational bag of meat (i.e. me).

While years ago I would overrule my trading plan, almost every time I did, I came to regret it not long after. Get beat over the head with humbling losses often enough and eventually, I learned my lesson. And now I always follow my plan no matter what my gut thinks. Today I am sitting on a pile of profits in a 3x ETF because of that lesson I learned the hard way all those years ago.

If you messed up this trade, don’t be too hard on yourself. Count this as a learning experience and try to do better next time.

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