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Don’t Listen to Others Opinions or Trading Tips: Tale of Two Traders

October 10th, 2012

There are few true facts about humans. Most are followers - many are not leaders. We all seek instant gratification - wanting to skip the hard work in between. Even if you know this, its still hard to go against it when a tip is presented to you to make your life easier.

Let me tell you the story of two traders. One of my friends was staying at my house for a bit. We were still in the early days of trading, and he setup his computer setup in the other room. It almost felt like were room mates even though we were out of college. We just wanted to interact during market hours, play concepts off of one another. He had his screens and I had mine.

We started going about our day and one stock in particular which we both owned - I was long and he was short. (I can not remember the stock at this point in time). He was looking at it from the short side and I was looking at it from the long side.

The day goes by and we had various interactions about the direction of the stock. I started to doubt myself and ended up selling my shares.

So what did the stock end up doing? It went down for the day and then popped back up higher than ever over the next week.

Whats the lesson?

After me and my friend talked, he was trading on day-to-day basis. He wasn't looking to trade for more than 2 days. As for me I was looking at a longer term horizon such as a week, maybe more. Lesson learned that you should always stick to your own rules and your own trading strategies. We were both right but our time horizon was different. Doubt caused me to make changes in my plan or strategy. Its a psychology game, so stick to your rules and your strategies.

NetFlix (NFLX) Gaining Ground on 2nd Day – But Becareful

October 4th, 2012

Netflix is gaining ground its second day and following through. But be super careful... its still considered a piece of crap by the pros.

Why? Well because look how much dumping they did on it just not to long ago. I assure you they are not anxious to jump back in it. It does look temping, but temptation is full of evil. I'm staying away for quite a while still and waiting for the stock to prove to me that it is worth it. What you do is up to you

Don’t Have Ants in Your Pants for NFLX Today!

October 3rd, 2012

Many amateur stock  traders probably felt that Netflix was tempting today. It was temping! The stock jumped 10%+. Over $6.18 a share. If you enter the stock long in the morning, I applaud you. But one thing to remember is that when you are in the jungle you are just gambling. Be patient in the morning and make sure the volume is there. With NFLX it was (to some degree). So the next question is where is the big money heading? Well.... that is anyone's guess.

Check the weekly chart below: 

The stock was toast after it hit $300 per share and then rode down to around $56. Ever since then it's been struggling. Although today was the first day that it broke a descending trend line if you look at my chart above, but that's not something to rave about.

Billions of dollars pushed the stock down. So be patient and wait for a second day to confirm the move if you are looking to go long. I believe this could be just a short covering due to the amount of shorts there are in the stock but only time will tell. Stay patient as 1 tick does not make a trend. If you were a day trader and got the move - great. If you are a swing trader that likes to hold for days, weeks, or months on a longer time horizon, why not be patient and wait for confirmation? Whats the rush?

Why is the General Public Attracted to the Stock Market?

October 3rd, 2012

Studies show by the Gallup Polls that about 54% to 67% of Americans are invested in the stock market at any given time. This means that the percentage of people that try their "luck" in the market within their lifetime is probably around 75%, but that is merely a guess.

Most people that get into the stock market to trade as far as the general population is concerned typically get in for the wrong reasons. Here are some of my main reasons I believe the general public gets into the stock market.

  • It's an easy way to make money
  • you can work from home or anywhere
  • you don't have to do to much, just make the right decisions (buying or selling)
  • you can let your money work for you
  • you can be rich
  • you don't need a college degree or higher-level education

I am sure there are plenty of other reasons. The big one that comes to my mind is the psychological ones such as they make assumptions that it is an easy way to make money. After all, what good is your money if it is just sitting in the bank getting 1% interest?

The stock market does have a lucrative way to pull people in. First off you don't need to have a college or even a high-school education. Anyone can get into it if they have the capital requirements. It is something that requires very little experience to get short term success.

For example, you could get lucky by purchasing a stock - it goes up - and you were successful. It is one of the few industries that something like that can happen in. Other things, such as playing a guitar takes practice. Before you are even to be successful at playing a song, you need to learn many intricate things like chords, finger positions, etc. You can not just buy a musical instrument and expect to be successful next day. With the stock market - you can get lucky and get that short term success or psychological euphoria.

This psychological mindset becomes very appealing to beginning traders who gain great initial success. Unfortunately, for long-term success it is very unlikely and in order to be successful in the long-run in the stock market, you too have to practice, study, and put the time and effort in. In fact, many stock market professionals are extremely hard working people. The people who do not put their time into the market and do their own homework (people who only follow tips and other people) are rarely successful in the long-run. Yes they may make some money here or there, but just crumbs.

Do not get wrapped up in the instant gratification of stock market success and assume you will be successful for a long time if its easy for your currently - especially if you have been trading for less than a year. The market is setup to take your money! Be careful if you are new to trading and investing. Be prepared to put your time and energy into it if you want to be successful in it. It will be the most expensive education you will ever have!

Understanding Diversification in Stock Trading to Avoid Losses

October 2nd, 2012

It is important to have a diversified portfolio in order to minimize risk.

What is Diversification?

  • A variety in your pool (a mix of companies, e.g. tech, oil, industrial, pharmaceutical)
  • You want to have a mix of industries so that if one industry has a bad year, the rest of your investments still have the potential to do very well
  • If you invest everything in one industry and it does poorly, you'll lose money in all of your investments
  • Example: If all of your stock  in technology companies (Apple, Google, Microsoft) and technology takes a big hit, all of your stocks go down.
  • You are taking a larger risk if you confine yourself to one industry.
  • Keeping your portfolio diversified is especially important if you are new to the stock market.

Google Surpasses Microsoft in Valuation at over $250 Billion!

October 1st, 2012

Google (GOOG) today got a huge applause. It has now surpassed Microsoft (MSFT) in terms of valuation. Google (GOOG) is now valued at $249.5 billion! Pretty astounding! However still no where near the success Apple has had.

Apples valuation is over $630 Billion due to its huge success in iPhone and iPad success... 

So what does all this mean for your trading? Absolutely nothing! This is just more news to report for most websites. Let companies have their fun and glow in their glory. All you have to do is trade them well. Watch the key signals, stick to your trading rules, follow your trading edge, and be patient.

True Loser Mentality in the Stock Market

September 26th, 2012

I had a chance to check out a great seminar by Jack Schwager, author of the book Market Wizards. There was an interesting point that he hit on regarding winner and loser mentality. Every single trader loses at some point. They either take a hit, a loss, or lose some kind of money. If you are new, and it hasn't happened to you yet - it will!

When one is in a bad trade and a stock dips lets say 10% - the loser mentality person will say "I will get out when i'm back to even." This is basically setting you up to lose more. If the stock dives further - then you will take a larger hit. People say that they will get out when they are back to even because they don't want to admit that they just took a loss. They don't want that psychological burden of being a loser.

The fact is that anyone who trades professionally, or made millions in the stock market had many losing trades. Its about getting out of your losing trades quickly and letting your winning trades run as much as possible.

The winning mentality knows this. Make sure you don't hold on to your losers. Let the ego go and get rid of the losers if they are past your rules and have gone through your stops.

I'm Sasha, an educational entrepreneur and a stock trader. In addition to running my own online businesses, I also enjoy trading stocks and helping the individual investor understand the stock market. Let me share with you some techniques & concepts that I used over the last 10+ years to give you that edge in the market. Learn More

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