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Hey it’s Sasha Evdakov, and welcome to the rapid recap, or let’s talk stocks. It is December 3rd 2015 and today’s lesson is all about the three components to master the stock market game.
If you haven’t joined me before here on these lessons you’re in for a treat, because I typically go in detail into a very detailed lesson to better you stock market education and knowledge. Similar to taking class for dancing, or going to cooking class, you’re looking to improve your game.
And everybody cooks a little bit differently, everybody dances a little bit differently, so the same thing in the stock market is that your risk tolerance, your preference, your goals and ambitions, and the amount of time that you have to put in, is different than what other people have at their disposal.
You need to really hone in and master what’s going on in the stock market and how it applies to you specifically, not just looking at the hottest and greatest peaks, because anybody can really do that and give you those things. But you need to start learning how to think on your own, to move yourself to that next level.
If you ask ten technicians to ask them what’s the hottest stock of the week or of the day, you’ll probably get 10 different answers, or then different results.
My goal for you in this lesson is to get you to start thinking a little bit more about yourself and how the trading environment, how trading itself can apply better to you and the three main things that you need in order to better yourself.
Let's look at the hot stocks
Before we move on into the lesson, what I’d like to do is just go over, just the same thing what we just covered and discussed. Looking at the hot stocks in the market.
When we look at the market, when we look at what’s going on in the environment and see what’s happening underneath everything, you can start looking and seeing that we have a fairly major selloff here.
We’ve talked about this over the last couple of weeks, we’ve talked about it in the means or in the sense that if the market breaks through this line right here, which we’ve mentioned. If it breaks here, what we could do is come back to retest this level, and then potentially sell back off or bounce around here and isolate.
What happened was that once we broke this level, we came back to retest it, bounced and now again we’re trying to get up to that level, but it’s having a hard time holding up at these levels. And if you’ve been with me for quite some time, you understand that these levels and stocks moving up to these higher highs right here and these peaks, it makes it very difficult for prices to sustain at this level.
I assumed or thought that we would probably get somewhere up here to this level, and then recheck it just like we did in the past over here, but at this point, we didn’t even have enough energy to move beyond that, and we sold off, and we sold off in a big way.
We did have some consolidation pattern that happened here for the last week or two, during the holidays and the short trading week. And then as momentum built up, we did have a major pull back the last couple of days, which in fact could’ve been good or bad for you, depending on your position or stand on the market.
But if you’ve been following me, and know and understand that the market right here, talking about it, watching it, what could’ve happened here, breaking through this, I talked about it when we were on this region, so go back and watch the rapid recaps in the October timeframe, to see what I believed would happen, was right here, break through, either go and move sideways now, or potentially sell off.
There’s only a few things that can really happen and you have to start determining the conditions, which we’re going to talk about in a second, of what’s more probable.
We were at the highs and peaks over here, to the left. So right around April, May, June, July, we were at the peaks, then we did a little pull back over here, and then we came back into that consolidation area.
What is the more probable or likely event now? Is it possible that it’s going to continue higher this way from the lows over here? Chances are probably not, and that’s why I said, we can either go pass this and break out, and if we do, we’re over extended, it’s like stretching our rubber band, we’re over extended, and then the stocks will probably roll over, I’ll be looking for a short.
On the other hand, the other opportunity or chance is it comes back up here and then we roll over and we sell off completely, so again, that’s another situation or possibility, or the third option is to move sideways.
For me the more likely scenario is either things will move sideways, or move to the downside, that’s more probable, I don’t think things will break out to the upside, but again, everybody has their own opinion, and everybody has their own idea of what’s going to happen to the market.
If we look at the overall, how things have been moving and behaving, this is why I don’t see it continuing to power higher, it’s because we’re so far extended, that the more likely situation or the more likely cause and effect, the more likely effect is that the stocks will roll over, it’s a higher probability, because they pulled back.
When things were breaking out right here I was cautious, and then we had a pull back, and then again we bounced again right there and I was cautious again, going in for a long, we just had, Netflix really as the primary position and then also amazon there and Google, so we had those positions on, but right here as you can see, these are coming into those resisting levels and the stocks are coming back to the support level, we could get back to this level and then bounce again, so we will see what happens, but right now you have these two major lines of support that you need to be mindful of and see how stocks behave.
If those two break, you can see it coming back to this price level, 1900 on the S&P and that’s where things might be another opportunity for you to purchase shares at a lower price and see what happens from there.
Why do stocks behave the way they do?
Of course you’re probably wondering, what’s the reason or why the stocks do what they do? And the reality is it really doesn’t matter why this happened, or why we had a major selloff today, it really has no effect, there’s no reason why it happened, meaning you could blame it on Yellen, because Yellen spoke. You could blame it on the shootings that are happening, you could blame it on multiple things, but the fact is that there’s multiple causes to what makes the stock market selloff, it could be that we’re already reaching the highs or the peaks.
The point is that it happened, it doesn’t really matter why, it just matters that it happened, and you need to protect your position, and the more important question is what’s going to happen next, for the future?
Those of you that have been with me for a while and have the green course or the technical analysis course, as we zoom in deeper, and I’ll just give you some insight here, you can see that there was a tail sign right here of 1.3 million shares to the downside before we broke, then we had a little pop here on 12-1, with 867,000 shares, and then a selloff with one million shares, and now we’re increasing with another one million shares.
If we look as the SPY, you have the same concepts here, your primary sign right here where things changed, and the reason I say they changed is, take a look at this back here, you had a green bar of 94 million, then a red bar of 64 million, then another green bar of 98 million, doesn’t take a rocket scientist to look at colors and look at numbers, right? So you’re starting to learn and understand what’s happening.
Now those green bars are higher than the red bars. However, look at how things changed, so here we have 112 million shares to the down side, but to the up side we have 97.8 million, and then to the down side 108.4 million, and now 164.2 million.
Hopefully that gives you some insight to why this was going to happen, you really should’ve seen it at the November 30th mark right there, seeing that it broke through that moving average of the 20 day average for trading volume.
And we use 20 day, why do we use 20 days? It’s because there’s 20 trading days in a month, so hopefully that gives you some insight.
3 key components to master the stock market game
Now going into the lesson, we’ll talk about these key components in terms of understanding how to master the stock market game.
In order to master the stock market game, you really need to master these three major components, and if you don’t master these three components, you’re going to be missing something in one or the other.
You can compensate for one or the other by being a little better at one or the other, but you still need all three to make things successful, it’s kind of like you need all four tires of a car in order for that car to move forward, you need them all on the ground, unless of course you’re a professional driver who can drive that car on two wheels or something to that effect, but really having all 4 tires on the ground, allows you to move forward consistently at a good speed and very smoothly.
In the market, you need three primary things in order to be successful, so what are those three primary things?
We’ll draw it out right here. We’ll have one bubble right here, we’ll have a second bubble here, and then we’ll have a third bubble right here, so think of this as a Venn diagram.
The first thing that you may need is to master the markets, so we’ll just call this “M” right here, so you master the markets.
Then the next thing that you need to master is master money and risk management. We’ll call that “R” for that circle, which all three circles are overlapping and in the middle here we have kind of an overlap of mastering all three, this would be the ideal goal.
And then, the final thing is, you need to master yourself. We’ll just call that a “Y”, for “You”.
You need to master all three, so here you have the markets, you have the risk, and then you also need to master yourself. So let’s get into detail, what all these things are?
Mastering the markets
First off, in order for you to master the markets, this is the environment where things are taking place, this is kind of what happened today, the markets are moving and acting in a certain way, and once you’re looking at the markets, once you’re looking at how things are moving, acting and behaving, then it allows you to be a better technician, it allows you to feel the breath of how things are moving.
It’s kind of when you talk to a friend, you start to get an idea of when they’re getting angry, when they’re getting frustrated, when they’re feeling happy, when they’re feeling joy, you get an idea, you get a sense, if you have a girlfriend or a boyfriend or you’re married, then you know what that feels like, you kind of know when they are frustrated, you’re starting to master them a little bit better, you understand the environment where they are more happy, are they more happy when out to eat? Are they more happy when you cook them something?
You start to master these things, these environments and you start to get an idea and sense of how things are moving, acting and behaving. That is mastering the market.
Mastering money and risk management
Mastering money and risk management for your account is the next thing. So if we’re talking about risk and understanding your account, you need to understand this as well.
This is really about understanding how to put on positions, take positions off; it’s also about managing that money and cash flow.
If you put on 100 positions, or let’s say 1000 shares in one stock and you spent all your money, and you put it on one stock specifically, and you had no clue what you were doing and the stock tanks the next day, then you over leveraged, you over risked things and you are not a master of understanding risk and money management.
It’s all about knowing and understanding how to capitalize from the market, and protect yourself when things don’t go your own way.
One of the best things that you can do is learn or prepare to take action when things are not going in your way. That’s one of the best things that you can do in order to master money and risk, and we’ll get into this a little bit more here in detail.
The final thing is mastering yourself. And mastering yourself is the inner game, it’s kind of like the survival instincts that you need to have in the environment, so as we’ll apply this here to a jungle environment, mastering yourself is one of the toughest things for traders, because they focus a lot about the markets, and they focus somewhat on risk, but very little traders focus on mastering themselves or mastering their inner game.
This also pertains to emotions, this pertains to their clarity, their focus muscle, their own feelings and emotions and they don’t focus on it, they don’t focus on mastering those things, and for that reason, a lot of traders trade with lots of emotions, lots of fear, lots of greed, and it really burns them.
It burns them in the sense, it burns their account, it burns their energy, and it makes them trade even worse.
Getting back into this, the majority of traders spend most of their time in learning about and mastering the market, and when you master the market this has to do a lot with the outer game, the outer game is typically the physical, the external things, whereas the inner game will be the internal like balance, focus muscles, mental clutter, so those kind of things are the inner game.
The outer game is the external things, so this will have to do a lot with technical analysis, it has to do a lot with buying shares, selling shares, shorting, how to actually execute an order, it has to do with funding an account, it’s all external things, technical analysis, support and resistance…
All that is learning about how the market behaves, and those are still partly external, but you get into a deeper level where you start learning how the market breaths and behaves and that’s even taking things to another level.
Learning about the markets and mastering how the markets move is one of the main things that you need to learn, and that’s where a lot of traders spend their time. They’re learning to get the tools to learn about the market, it’s that physical presence.
And that’s a good starting point, it’s going to get you far enough to where you can place trades and then go ahead and lose a bunch of money, because you don’t have any of the additional or other components to mastering your stock market game.
The next part that traders focus on is the risk management and money management, they try to minimize those loses, so once they learn about the market here, what they try to do is focus on minimizing their risk and minimizing their loses, and when you have these two paired together, what you rally end up doing really well, is you end up losing a little bit less and less, but you still end up losing.
If you have a piece of the markets, and you understand a piece of the markets, you know how to place a trade and you know how to execute a trade and you know some basic technical analysis and then you also know some things about selling your position, selling it quickly, then you end up taking less loses, but you end up taking more of them, because you’re still not understanding the full puzzle.
Knowing and understanding risk management, money management is pretty good because you end up taking some profits... You end up taking money off the table, and you end up knowing how stocks move and behave.
The problem is you still haven’t mastered the emotions. And if you’re still trading with emotions, meaning with fear, with indecision, without focus, then you still don’t have the full piece of the puzzle figured out.
Instead, what you’re doing is now potentially you understand technical analysis, you understand when to get into the stock, then you also potentially understand I need to take profits… I need to take Money off the table, but you’re still trading emotionally.
And for that reason, you’re still losing out, so if you’re at that stage, that’s where things now are starting to maybe get a little bit closer, but you’re still not there, you don’t have everything.
And for that reason you also need to master the “You” part, or master the inner game. When you master all three, or the “You” part, and you get the other two components to work together as well, it allows you to now master the markets, you understand how stocks move and behave.
It also allows you to go ahead and manage your money and manage those positions properly, and then you also know what’s going to happen with the market because you’re calmed, you’re doing logical steps and you’re doing steps that are in your favor because you understand yourself. You understand what works for you. And mastering yourself is one of the most difficult parts.
And if you don’t have a mastery of yourself, it’s going to be very difficult to become a successful trader. You might be able to get away with it if you’re really good at mastering technical analysis and if you’re really good at risk management.
But imagine if Michael Jordan, as I always like to say, every time he took that shot and the just constantly just said “Oh no, I feel so horrible” every time he missed, if he felt that way, do you think he would take another shot or another basket? Chances are probably not, because he will feel so bad.
The same thing here in your Venn diagram, is you need to understand all three components, because in theory, we do have a survival instinct about you. So your inner game does have a survival instinct.
And because it has that survival instinct, and if you have mastered the markets and if you have mastered the risk, then you’ll partly have some emotions that you’re trying to battle and win, and sometimes you’re going to win those trades, and sometimes you’re going to lose those trades.
But the less that you master those, the worse off your account is going to be, and the more that you master those, the more calmed that you can be with trading, the more technical or logical and more clear minded and acting with a plan that you can be with your trades, the better off you’re going to be.
Here is my point in getting to overall this diagram of mastering these three components.
If you're just learning and you’re just starting out in the market, you’re probably starting to understand that you’re just understanding technical analysis, you’re learning how to set up your account, you’re learning how to place a trade, sell a trade, and you’re getting the basics down.
This really is mastering the markets, that’s the first thing you need to master and that’s a good starting point.
The next step you need to understand is mastering the risk and understanding how to manage your money and risks in the market. So whether that’s taking half off, as I always like to use as an example.
And there’s other ways that you can master risk, by putting on option spreads, option contracts, by doing multiple derivative plays or hedging your positions, which is way beyond the scope of this video.
But you can put on multi spreads or multiple positions in order to counter act or hedge a position.
And then finally, you also need to master you or yourself. And that really comes down to learning your inner game.
What order you take these in and what order you master these in is totally up to you. It doesn’t matter which order specifically that you do these in. Instead what’s more important is that you master all three or at least get them as close to mastery as possible.
In theory, that mastery level constantly keeps moving up, so you’ll never really achieve mastery if you’re humble enough, you’re constantly looking to grow and improve.
That’s one of the reasons why I enjoy writing and creating books and creating video courses, because it just continues to improve my game and I also become better as well, creating a win/win situation, win for you, to be able to benefit from the education. But a win for me as well, because it allows me to continue to practice, continue to study, continue to just evolve and get better.
If you want to focus a little bit more on you, and focus on your inner game, that’s fantastic and risk as well, then that’s fantastic as well, and then if you want to take it a little bit backwards and then focus on the markets, and that’s also fine as well. But you’ve got to get all three to master them.
The stock market is like the jungle
If we take the same approach and we apply it to the jungle, where you are in an environment, it gives you a prime opportunity to understand how this really works in a real world environment.
If you’ve never been lost in a jungle, then what you may want to do is just think about your camping trip, or think about when you go camping.
The physical presence that you have is the mastery of you environment, so think of this as the market, so this would be the environment, if you know exactly where the water source is, if you know exactly where the food is, that’s mastering your environment, that’s the market. So you need to master that to have those survival instincts.
You have to get acquainted to the land or to the area, it’s kind of like what Bear Grills does or any of the survivor men, people do, they master the environments, they look for the location, and figure out where to head first.
Then the next thing you need to do is understand the risk or money management. So in this case you need to master the tools or the skill sets, like a knife, a canteen, water, rope, those kind of things that you need to master, so the risk in that situation, if you’re in the jungle, if you have a knife, you need to know how to use it, how to build shelter, that would be your risk, your risk from things attacking you, that’s that risk that you may have if you’re in the jungle, mastering how to use a knife if something attacks you.
That’s the next thing you want to master. You you’ve got your environment, then you got also your tools and skill sets and then finally yourself.
If you’ve heard or seen some of these shows, you know that they talk a lot about moral, starting a fire boost of moral and boosts your mental psychology, state, that’s the mindset.
The better that you feel about yourself, about the mental, psychological state, the more positive you are, the better your chances of survival. You need to have all three of these components to survive.
Do you need to be super perky? Do you need to be super outgoing and have a wild spirit like it’s your birthday in order to survive? No, absolutely not, but you need to have some positive moral in order to continue to move forward in that jungle environment, in order to use your skill sets, in order to use those tools, the water, the rope that you have, in order to progress further.
Because if your moral was completely down, if you felt bad, you may just want to sit there, wait and hopefully somebody recues you. So otherwise, if you don’t have all three, you’re going to be in a tough spot.
So hopefully looking at this diagram and putting all three of these things together, it kind of positions you and gives you an idea of where you are positioned in the trading world.
You may have just understanding of the market, you may also have some basic understanding of money and risk management, but you might not understand yourself or the moral or the inner game and the psychology, you might be getting fearful.
And I find that most of the traders, their main issue is actually right here, is mastering themselves.
The second biggest issue is probably mastering those risk and money management, that’s probably the next biggest issue.
And then the first thing that most people start with is, they start with learning the markets, learning about technical analysis, learning about how markets move or just learning about their environment, how to put on a trade, how to enter a trade, to exit a trade, so that’s where most people start.
Typically the way the process goes is that number one, they start here, in the sense of learning the environment, number two is they go to risk and money management, number three they focus on their inner game or themselves.
You can kind of categorize yourself, where you are and what else you have to learn in order to become a little bit more profitable or to better your game.
You don’t need to be the full expert in all of them to be successful, but you do need to have a little piece of everything to make it through in this game and in this business.
This concept can really apply not just to the market, but in general life.
Hopefully you got a great deal of knowledge and information from this video, it gives you some things to work on and some things to motivate yourself to push yourself further.
So hopefully this gave you some insight to continue to improve, to continue to get better and just evolve.
Like I said, this doesn’t apply just to the stock market, it can apply to general day to day life and many things that you do. So use it to your advantage, start looking at where you are and what you’re lacking and build those assets, tools, skill sets that you need to progress further.
And remember it’s a never ending goal, you’re constantly looking to improve, you’re constantly looking to get better.
Keep your eye on the stock market, at those critical levels, you could see a slight pop on the next day or tomorrow, just because we’re quite oversold, or if it rolls over, you could see a nice deep back down to those levels that we talked about earlier.
Always be mindful, watch the risk and adjust your positions if necessary. Hopefully you’re always taking profits, and that way it keeps you in a more profitable position.