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Welcome to the Rapid Recap it is August 20th 2015 and today's lesson is Evaluating the Quality of Your Stock Trades. I'm Sasha Evdakov and thanks for joining me.
Now this last couple of weeks we were actually away from the office area and we were spending some time in Canada so the Rapid Recaps and the things that I was working on maybe we're not as good as I hoped and I had some ideas on our vacation to make things better so anytime that you go away I have a clear mental thought you know we were relaxing by the lakes going canoeing, kayaking, boating and celebrating a 50th wedding anniversary over there and also went to a war museum, light show and a lot of different things you can do a lot of things in two weeks and have really rebalance and recalibrate yourself.
Now still did have some stock trades that were on and just watching closely and carefully in the lot of those were based on the discussions that we've had before so we'll go over a few of those positions but really about one main specific company or trade in particular. We’ll go over in detail about that but now that I'm back in the office area things are a little bit easier to work on in terms of video recording.
What I want to do is do something a little more visuals so what we'll do is we'll go through with the Rapid Recap and talk about the Dow Jones, S&P, Apple, Netflix, Facebook, CMG and Tesla and I want to incorporate some of these visuals here within today's lesson as well and that is just because I know sometimes the Rapid Recaps, I don't tie in as much of visuals that are to regular life as I do with other Tuesday lessons that we tended do or regular lessons on YouTube.
Today my goal is to make them a little bit more connected to the real world because I know sometimes the market can be confusing so I want to apply the lesson a little bit more visual if you’re members of the critical charts I posted some of these charts over there in the critical charts so go ahead and log in and check those out as well as the notes that are associated with them.
Today's Rapid Recap our focus is really about evaluating the quality of your stock trades and based on how the market's been acting and performing it's no surprise that we get a little bit of a selloff. Now when it comes to the real world and the real world application of how we choose things based on quality you know not everybody chooses the cheapest thing and not everybody chooses the most expensive thing.
If that happened you know we would be wearing the same clothes just similar to the Waldo character over here so take a look here we would probably be wearing the same kind of close the same kind of jeans the same kind of shoes as everybody else if everybody shows the cheapest thing possible in terms of their buying selections.
This goes along the same thing with stocks that will apply to in a little bit so if we were to always choose the most expensive thing the same thing would happen is we would all be running and doing the same thing in terms of driving the same cars eating out at the same restaurant so because that doesn't happen we all have a different evaluation of quality and what does quality mean to us so you have to remember if you're asking me questions about which stock looks good I base it on my quality perspective you have to evaluate things based on your quality perspective when choosing stocks.
We'll get into this in a second time together. When you're looking to purchase let's say candy here or a chocolate bar you have a truffle here that's worth $250 so you can choose this truffle and eat at one time and going to cost you $250. The other route you could take is just have some General Candy which may cost you $5 or you can have something mid-grade that you know somewhere in between the two hundred fifty and $5 like the Lindor truffles here so a little bit of a different kind of chocolate then the $5 candy or the very expensive premium grade truffle.
For me when it comes to trading stocks when it comes to trading stocks and my investments I’m looking for the most expensive truffle I can find. I'm looking for the most premium stock that I can get premium meaning the most high quality stock I can get and that is because I want less risk. I'm very risk-averse I don't like risk and I want high quality return I'd rather have one really good stock than thousands of pieces of candy or thousands of other stocks that are just so-so or ok I'd rather than just not trade and sending cash I'd rather just wait for the opportunity.
That is my quality spectrum when it comes to stock-picking. When it comes to a car example let's just talk about cars because I think it's easy to relate a lot of people are looking for especially if they're more males they're looking for a high-end premium car you could choose your quality based on again they want the highest quality everything so then they would choose the truffle they would use Lamborghini and so forth but you can't always get the highest quality and everything.
In this case let's take a look at this example so we have a Lamborghini and many people would choose a Lamborghini instead of having something else they would say okay I want the highest quality Lamborghini but I'll eat the $5 candy or I'll have the multi-million dollar house but I'm going to eat the cheapest food that doesn't taste good so there's a different kind of valuation or value that's associated in that person's mindset.
For some people they’ll choose a Lamborghini they'll have one car rather than let's say you have two Audis ok so for another person they might rather have two different cars either two of the same cars or two different cars mid-range.
Let's just say this is the mid-range valuation in terms of vehicles and then for other people you have multiple Toyotas. Again the valuation is really different and it might shock you are surprised or maybe it doesn't for me I'm actually the multiple Toyotas person in fact I Drive a Toyota. So for me the value of our car is really not that important I don't really care about how my car is what it looks like because of the social status to me is just not important. In fact I want to be more camouflaged and hidden about that.
Can we purchase an Audi? Can we purchase two Audis? Of course no problem we can buy them with cash. Can we buy Lamborghini? Yes of course, but is that important in terms of the quality for me? The quality for me here when it comes to a car what I want is I want reliability and if one breaks I'll buy a second one or a third once our fourth one. Really is a no headache kind of thing for me.
Now when it comes to stocks I want the truffle I want them most expensive and best stock in terms of what's on the list. Not unnecessarily expensive in terms of price but the highest grade quality that's what I'm looking for and the highest grade quality I'm not talking about to the long side or the short side.
I’m talking the highest quality meaning the highest probability or percentage of reward that's what I want from my stock trades or investments or whether I'm doing option spreads, calendar spreads, iron condors I want the best of the best. When it comes to cars I want kind of something in the most reliable so it depends on your quality valuation.
So you have to determine where are you in terms of your candy or car example are you more of the truffle person or would you rather make a few more trades in between.
Such as like something like this candy right here let's just say its mid-range so make a few trades or would you rather make a ton of trades but only make a little bit of dollars. When you're talking about the truffle you make one or two trades and you'll make a lot more from those few trades. When you’re doing something candy like a Lindor truffle like something mid-grade then you might make a dozen trades and then get decent reward.
When you're talking about just cheap candy or just very discounted things you’re going to have to make hundreds of trades or a lot more trades in order to capitalize and get a good return.
Let's take a look at some of these stocks and some of these some of these indices and how things are moving and then I'll share with you about my current position and just some of the things I'm watching.
Dow Jones is basically looking at this support line right here. When we're looking at this support line you notice that it’s starting to break right here and we accelerated mid-day there and we're down 353 points. Now we went sideways for quite a while and if you take a look at this weekly you can see things are starting to roll over take a look at the daily you can see some volume picking up.
If you really want to see true volume take a look at the diamonds you'll notice the diamonds over here here's the volume spreader right here. You can see it's picking up accelerating to the downside you would have seen it the other day breaking and then over here we're just accelerating and continuing that pattern.
If we take a look at the diamonds the same concepts playing out ok so be careful as we start approaching certain levels because you will get bounces once things are oversold a bit but look at these levels and how they're coming in.
The same thing over here so here it is here's our support lines the indices starting to break it 42 points down for the S&P that's huge and you can look at this on the spiders as well. We're basically coming in to that level and starting to accelerate downward so we could see much lower prices over here at least about the 197, I would guess 198.
Just be mindful and be careful of how things are moving into your stock alright so that's kind of the indices.
Let's get into the stocks themselves so for me the first one I want to discuss and this is the largest position that we have is a short on Apple. Now I've been talking about the stock for months between the critical charts between the Rapid Recaps and that is because I saw it’s setting up.
There's a lot of things that I saw setting up and I'm not going to cover up too much in detail here just because we've dwell on it along with the earlier ABCD pattern but I've noticed the rejection here. I noticed that come back to test this and then the break here so you could have been shorting it right here at these different points or when the stock bounce right here that was just the dead cat bounce and then right here was another shorting opportunity when it rejected at this 20 day moving average.
Now if you want to be safe you could have definitely waited till we came and broke this level or even this level and you still even if you waited you still would be up six points and thousand shares $6,000 right there in a few days.
Now we had some people talking saying that it could come back and go even higher and push even higher. My prediction when you know how stocks moving behave right here that it would come back here because this is also our 200 day moving average as you can see.
Come back to here and this is where the twenty days crossing over, rejected at that level and then sell off but we couldn't even get to that level and that stock continues to move and roll over. So we do a little pop and then we sell off we pop and we sell off so the stock’s just moving simply in the terms of when it pops it's just a selling opportunity for the time being.
Now you should be taking profits and the strength every time it goes in your favor just to reduce your risk because you’ll never know when you'll get those bounces but watch and be mindful of how the stock’s coming into this level and this right here is our largest shorting position.
Now in terms of trading when you trade stocks whether your trading just a single stock just 2 to 3 stocks or 5 to 7 stocks you know diversification i think is great when you're running 5-7-10 million dollar portfolio but if you're trading less than $100,000 there's a video I did not too long ago you really don't need to be trading more than 4 or 5 stocks and that is just because of your mental clarity.
Now this is my truffle right now this is what we have this is our truffle. We do have couple other positions on that are much smaller more like a Lindor or as some of the other candy pieces just to see how those things go but really this is the truffle that we have this is the biggest position that we have on the short.
For other people they may be trading for five stocks but on a smaller level for diversification purposes and that's okay it depends on how you judge and base your quality remember what we talked about in our lesson. So are you the person that you would rather have one car, two cars or 4 to 5 cars. Are you the person that wants the truffle or you want to manage a couple of positions something mid-range? Are you the person that just wants a whole bunch of positions but keep in mind which one is probably the healthier option for you or the better quality.
Chances are the truffle’s going to be better quality, chocolates not I don't know if that’s healthy for you. I wouldn't call it healthy in terms of my level of health you know salads and fruits I would say are much more healthy but in terms of these kinds of chocolates or these kinds of candies would you rather have candy that's filled with sugar or would you rather have a truffle that's more premium grade chocolate.
You’ve got to look at your spectrum and see where that plays out so do you want to have a lot of positions on and have a lot of sugar and be on a sugar high. Are you looking to have something that's just really high-end and manage it and just focus on that how do you want to trade? How do you want to manager portfolio? You have to decide that.
For some people they love trading fifteen twenty five times a day. For me I would rather trade once or twice a week or once or twice a month and hold that position for a couple of weeks for a couple months and let it run. I would rather do that because that's when the big money is made.
The same thing here when you have let’s just take a look at Netflix over here we have our stairs that pattern so here was our resistance one resistance two. Here is your entry point right there so that's your entry point break out on heavy volume that is your signal next entry point or adding opportunity boom and then you're taking some profits into strength here as we power higher take some profits somewhere around here and then again you can enter an ideal position and then again you can add to your position but remember you should have been selling some in the strength around here and now this line right here that line broke that stock broke that line.
Right here you should be out. You're out I’m exiting right there that's your exit point bearish bar huge selloff volumes picking up. You want to be careful and mindful.
Now if you had a more wider stop you could use something like this as your stop at this level if you got in it somewhere around here and you took some profits around here then you could use that $100 level as your stop but in general if you're keeping tight stops you’re appealing stuff into strength and raising your stop and then once it breaks that stop you're out that’s it you're just moving up no negotiating no ifs ands or buts. There you go there's another stock.
Facebook same thing weekly this is a weekly chart but really look at this gain that you can add 10 points .Let's just say you had 5,000 shares 5,000 shares times 10 points $50,000. Let's just simplify things let's just say you had 500 shares 500 shares times 10 points $5,000 if you had let's just say 50 shares 50 shares times ten $500. So even then you're holding it for 28 days that's a month that's a month holding period where you don't have to do anything you could go enjoy the beach you can go relax you can go kayak you can go canoe you can go play tennis.
You can go do whatever you want and when the stock comes back let's just say you set a stop somewhere over here stock comes back right around this level boom you would be out right there stock is breaking it or even right here ok definitely out but looking at this stock right here is our entry point adding point taking profits in the strength somewhere around here because you have that gap right there. The stock is selling off pretty heavy, accelerated volume and that is also because the market itself is selling off so you want to be mindful.
Always the leaders these leading stocks usually sell off first and then everybody else follows because many people are trading these.
This includes things like the CMG, looking at this one this one trade lighter volume so you want to be mindful but look at this right here use that line as support if you were in this stock. Now we're not in this one anymore but if you are in this stock right here and you got in it when it broke this descending trend line right here allowed it to run.
I know we had some earnings right here so you probably got out of it and then maybe you got back in it right around here and then maybe trade and took some profits in the strength but even right there at that point level even if you got in it second day after earnings you still had a twenty three-point gain.
From right here to 726 to 753 that's still a twenty-point gain and then you're using this right here as your stop. Nothing wrong with you know taking profits in the strength or being patient being mindful and you know not even trading earnings. You know you can wait and you can still capitalize on that run.
CMG right here watch that line for a potential break I wouldn't short it here I would if you’re long I would use that as a stop with Facebook right here if you're long I would have been out today for sure if not somewhere right here on July 30th probably or maybe August 6 and that is just because it is showing some red flag signals.
Now can the stock fill this gap right here or come back to retest this level and bounce absolutely and that's the opportunity to get back in but you're always taking profits in the strength and here was your break and you take profits and you allow it for ten point run even if you got only half of that let’s say four-point five-point.
What's wrong with that five points even if you miss part of the run 5 points is 5 points, right? Waiting for the break and then you're letting it run for 20 days that's a twenty-day run.
Finally we got Tesla that we're talking about now Tesla's an interesting stock because it's highly shorted you have resistance right here at these swing points right here so you want to be mindful that this stock has that resistance line there and then it came up rejected it there's the higher volume bar and we continue to sell off 13 points today if you look at the daily you can see that we kind of, what we do is we sell off with power higher we sell off we power little higher but overall take the highs of that swing point and go to where they are and you'll see the trend.
There's our trend if you just draw a resistance line there's your resistance line and that's what our stock is doing. Looking at overall the weekly volume it’s little tricky to see this one but not the previous week the previous week was a bounce but the week before that you can see we did 30.7 million shares to the downside then we bounced on 21 million.
This week isn't over yet we still have one day but look we almost have 20 million shares to the downside whereas we had 21,000,000 shares to the upside last week so one more day chances are we'll probably surpass that 21 million because we're trading let's say our average trade is about 3.64 million 4.5 million. If we do that much for the week we will get about 23 million to twenty-four million shares to the downside whereas 21 million to the upside was the previous week.
That's kind of my insight for the stocks I know I didn't share with you a ton of different stock picks but I hope the lesson was insightful and good you know I mean there's some other companies like a GoPro as well you could short you can see right here this was we talked about this also in the charts before I haven't posted these stocks back in the critical charts and you know there's no sense to discuss them because they're already in there, the charts and the lines from the previous week still apply and same with the Rapid Recaps. The Rapid Recaps that we discussed from the past these still apply these charts and trends.
Notice right here we had our swing points right here, swing point here rejection here and rejection here playing around and then we had a selloff so the stock you know it's not acting as strong but looking at the quality how is the quality what kind of stocks do you want to trade or you could trade cheaper stocks like this RAD this is like your gummy bears and candy and so forth or even like a Sprint $4 stock right.
You could be trading these kinds of stocks or you could be trading the more higher quality companies and it really comes down to the type of trader that you are. The type of trading that you want to do remember what I said about the truffle versus the Lindor chocolates versus the gummy bears or the sugar candy. What kind of quality do you want from your investments same thing with the car example. What kind of quality do you want? do you want to be in the best of the best do you want to be in the mid-range or do you want to be somewhere where you have more reliability or potential that if anything goes wrong you're not that upset that it happened.
If we apply this concept to clothes here and just put that put it in you know again are you looking for higher end clothing or are you the person that wants something a little bit cheaper like beach clothing or something more relaxed you know something where you don't have to worry about your appearance something that's just more loose fitting.
Again what is it that you value so what is it that you value in the sense of other items things and pieces and then apply it to the stock market. How do you value different stocks?
Do you want to be the person that’s you know has a bunch of stocks that are mid-range do you want to be the type of investor trader that has a lot of cheap quality stocks in your portfolio but hoping to do a lot of turnover like you know with the candy trying to sell a bunch of them or would you rather just trade a handful of times per year the really good quality picks and then have more of relaxed calming trading atmosphere.
Sometimes it's difficult to put yourself in one area or another just because you're going against your psychology or going against your mental training and habits that you've developed over time so if you're always the person that's always looking for something high and high quality the best of the best and maybe a good thing for stocks because that's what you're looking for then in stocks but if you're always looking for deals if you're always looking for something cheaper all the time trying to save a few bucks here and there then maybe not a good thing.
You really have to cater to what fits and works for you there's a video that I've made on YouTube that you know whether you're a bear or an alligator and if they got in a fight which one would win. Well it really depends on the context if you are in the forest chances are the bear if you're in the swamp chances are the alligator but it comes down to the context so you have to determine and decide whether you're the bear or the alligator and what type of pace you're moving within your stock trades, your investments and so forth.
For me I'm more of a calm trader, I don't like to chase things and that's one of the things that has made me a little bit more successful whether it comes to stocks weather comes to business education I really dig deeper into things and material because I'm looking for you know the right opportunities to get into those positions and it really comes down to one word it comes down to patience.
So look at the quality and evaluate things there's nothing wrong with trading stocks that are cheaper there's nothing wrong with trading stocks that are higher grade it’s just to understand that they trade slightly differently and that also you have to be mindful that the trading that you're going to be doing when you need to trade more frequently is going to be different than when you're trading on a more calm and patient level.
Where do you fall and where do you want to fall within that quality spectrum within your trades. Hopefully you got a lot of this video. Thanks for joining me I truly appreciate the fellowship got some great things coming working on a few books and I'm actually working on a couple of business books as well but got a couple of things working on the stock market still working on the Options Course and moving forward as well as the Penny Stock Book just because with Penny Stocks they’re actually a lot tougher to trade in my opinion because there's more manipulation but if you study the charts really kind of gives you an edge to spot those subtle signals.
Really that's why i like studying all kinds of charts because those cheaper stocks actually get manipulated and you can learn so much more by reading those lines in between and just looking at those subtle signals. In either case we're working on that Penny Stock Book we're also working on that.
Options course and I'm still aiming to do a few more broker reviews by the end of the summer so we'll try and get that wrapped up as well.
Thanks for joining me hope you have a great week ahead. Spend some time with your family your friends enjoy the weekend maybe go grab a nice buy it out to eat or cook something delicious for yourself and just enjoy it alright.
Thanks again! Remember do what you love, contribute to others but most importantly, live life abundantly.
I'll see you next time take care.