Listen to the Podcast
Subscribe to the podcastiTunes Stitcher
Hey, this is Sasha Evdakov and welcome to another episode of let’s talk stock. Episode number 98. In this episode, we are going to be going over reading the stock market trading conditions or, in other words, the road conditions in the market.
It’s essential for you to know these road conditions or market conditions in the stock market because you are looking at evaluating and understanding the environment, you understand how that driving is happening. What is ahead? What are the risks? What are the factors that are ahead? And that way you know whether you should pull over and take a little bit of a break or breather, let’s say there is a storm outside or there is significant rain, or go ahead and continue driving, go ahead and keep pushing, or go ahead and continue investing.
That is kind of what we are going to cover, and with understanding the conditions, you will learn whether you should be buying more, selling or holding or shorting a stock. So there are a couple of different factors to hone in on this lesson.
This topic is really in depth, I could probably create an excellent six-hour session about this topic, if not even longer because there are just so many factors. But you will get a little bit of a taste here, and maybe it’ll open up your eyes a little bit, and then you go ahead and apply it and study things a little bit more on your own. My goal here for you is to take this session and expand upon it.
The lesson is probably going to be less than 40 minutes long because that is usually my goal and that is often what I try to keep it under, so we will try to expand that into the lesson and most of the things that I’m going to be covering here it’ll take that 40 to 30 minutes but typically, as I’m trading, and as I’m doing things, really I look and evaluate these conditions all within less than a minute, less than probably within 10 seconds of looking at a chart, and that is only because I have seen the other conditions and past conditions and I also have been familiar with yesterday’s market action and market conditions.
That is really what it comes down to, and as you get more familiar with the market, as you follow it more, you will become quicker and better at it. But as you put these things into practice, then it may take you a little bit longer. So be patient, do your nightly homework and then apply that to the stock chart that you are watching and looking at.
In today’s video session things are a little bit different, you might be able to see me on screen now because we have a webcam here, I have a broadcasting checker over here on this monitor, I have my charting software over here on the bottom and then there is just a few other audio software over here that is happening.
I wanted to go ahead and try something like this with a green screen, so that way I can share with you more knowledge and information or share with you examples. I think it makes things a little better regarding a connection level because I am always looking at how to improve my education, how to help transform the idea over to you. Because in the end, I am sending you the ideas, the concepts and you have to decode it.
For me to go ahead and send more data, more information your way, whether that is just using hand signals, if you can get more knowledge and information out of it, if you can digest the lesson a little bit better, then by all means, I will go ahead and use it. It is all about learning and taking your education to the next level.
If this helps you, this type of format helps you, then go ahead and give me a thumbs up, and I will know that I should continue making more videos in this kind of setup. If you don’t like it, feel free and give me thumbs down and that way I will also know.
My goal and plan is, in the future, to go ahead and do this type of format for more webinars and streaming things in the future. We will see how it goes and how well you like it and that way I know whether we should try this in other formats or not. I have already had this video crash a couple of times, so hopefully this time it actually goes through and records appropriately because there is a lot of things that are going on and happening and it is also my first time doing it.
With that being said let's go ahead, let me know if you like it, if you don’t like it as well. That way I’ll know whether I should continue doing these lessons, but let’s go in into the lesson here and go through some of these conditions on trading conditions.
The trading conditions
Here I have a few of my notes as far as the trading conditions that we have: one of them being time, another one being external factors and then internal factors. Those are just some of the big ones that I want to cover, and there are subcategories within those, but I want to dig deeper into the stock charts themselves. But just as a quick little summary or run down or synopsis, when you have time conditions, as you’re driving, you basically have daytime driving, nighttime driving, afternoon driving, midnight driving, there is a lot of different types of time conditions that you have similar in the market, which we will get into in a second. Then you also have rush hour driving, during a lot of traffic time, so again time type of condition.
You also have external conditions like weather conditions, and when you have weather conditions or constructions on road conditions, you might have debris on the road, you might have rain, hail, and storms, cloudy and sunny. All of these different things are referred to external, and then you also have internal conditions.
Internal conditions are all about the way that you are feeling. As you are driving you might feel angry, pissed off, you might feel happy, and you might feel joyous. All these different things might come inside of you, and when you have these types of feelings, it affects your driving. Some people who are angrier they might drive a little more aggressive and that could affect you. With trading, the same thing. We are going to look at those kinds of concepts as far as trading goes and as far as the charts go.
Let’s take a look at the chart here and let’s pick any chart. I am going to go ahead with Amazon for the time being. Just because it’s a popular company, I might switch around from time to time but in either case, let’s looks at the time condition here, and again we are just going to go through this fairly quickly because it is a very in-depth topic and subject and I am trying to cover a great deal.
The time condition
On the time frame, when I am looking at stock charts on the time frame, I am looking at multiple time frames. Notice here, there is a 2014 year, and I am looking over here, there is 2015 that is off screen, but this is the weekly chart. I like looking at the weekly chart because it gives me a little bit more of a bigger picture. It gives me a fly-by view of the chart.
I don’t look at this hourly charts or 30 minutes charts. I will, if I am active and I’m looking at the other screens over here, how the stock is moving for that day. But my decision making comes typically from the daily chart and then also analysis with the weekly chart, and I put them all together. But this is the time condition that you want to be aware of.
The daily chart is more important than the intraday charts
When you are looking at this regarding time, understand that the regular plays more of a prominent role than the 30 minute or the 10 minute or the 15 minutes. The daily is more important, and the reason it’s more important is that you have more significant, more substantial support and resistance lines. There are more people out there on the roadways, there are more people trading at those time frames, and when they are trading at those time frames you have support, stability and you have resistance from overhead that pushes down. Looking at the daily and the weekly gives you a nice fly-by view of the chart.
If you go to a little bit of a bigger picture, the monthly can also do some magnificent views for you. I typically don’t look at the quarterly, sometimes I will, but usually the monthly will be almost the widest I go out. When I look at the monthly, it also gives me another perspective it gives me: Where are we now in the market? How far extended are we on the big scope of the picture? Those are some things that I look at as I am making my trading decision: what is the time frame?
What is the time frame telling you?
If you are driving, if you are looking to have a little road trip, and you get up really early then you might get fewer people out there on the road or the same thing if you are driving really late at night, let’s say 3 o’clock in the morning, there might be more favorable conditions for you. You are looking at the charts, as you are looking at the chart, you are looking at what’s favorable? What are the conditions? What is the time frame telling me? Am I extended on the upper end?
If you have a far extended stock, as far as timing goes, it might not be the best time to enter the stock. That is just because you are looking at those conditions as far as how far stretched things are. Just like we know and understand that a stock has a rubber band effect, you are looking at the same thing here: How far stretched is this? And If I look at the monthly, I would be a little more cautions on this stock to jump into it, and that is only because it is just so far stretched and the timing might not be the best if you are looking at the monthly.
If we are looking more on the weekly, the weekly might look still a little bit stretched because we are still at the upper end and if we are seeking a little bit at the daily now you could say we are looking at a little light pullback over the last week. We are coming into this moving average support line so you can see the stock is moving at the support line level.
That is what I have now in the back of my head. As I am now looking at this chart, to think about my trading decision, of course, I guess what my risk is? But in the back of my head, what is my timing? What is my calendar regarding the month? If I am looking at the monthly chart, my timing for the monthly chart is not the best, it’s not really at a value place, it’s like a descending trend line kind of over here, and then the stock breaks out. The timing is not the best as far as the monthly goes.
Then I look at maybe the weekly, then again the weekly could tell me: Ok, I am kind of there, but it’s still not the greatest, and then I look at the daily. The daily says: a little bit better, we are coming into support. If I am holding this or planning to hold this for a short little period, that might be ok. But I have to have those other conditions in the back of my head as well, and that to me creates a little bit more of a risk problem and that is why in this case I probably would not take the trade because I am now looking at that timing, the conditions of me getting into this chart or getting into this stock, are not really that favorable or amazing.
Sometimes I may take on a trade but then if I do, looking at a chart like this, I would go much lighter, I would go a lot fewer shares. Let’s say that you usually trade 1000 shares, and I might only trade 100 shares on this one. If you are trading 100 shares, you often might just put on ten shares on this one, and that is only because the weekly and the monthly overall don’t feel right to me.
Typically I like buying on this: if a stock is coming back, let’s say to this price level on July 2016 on July 19th, if it comes back to this price levels, and then I see it bounce, that might be an excellent opportunity to buy more shares if you value buying. But if you are buying at upper levels without a strategy, the timing is probably not the best.
Understanding when is the best time
You have to look and understand: where is that timing? And that is why for many people if you are looking at just a 15-minute chart you are going to get whipped around, and you are going to get whipped around on these 10-minute charts on these 5-minute charts because you are only looking at a short time frame. Whereas there are millions of other traders, they’re at different price points and at different times, they might be sick of the trade, they might be ready to cash out. By you knowing and understanding the time: the time that it takes to get somewhere, the time that it takes for the stock to move, the time that is appropriate for you to get in. When is the best time?
When is the best time for your travel? If you are traveling on a trip, is probably not during the holiday season because everybody else is traveling. You don’t want to travel during the holiday because all the plane tickets are more expensive, all the planes are booked, sometimes you can’t get reservation, it’s just more headaches, it’s a little more crowded, you can’t really go and see all the things that you want because things just get booked up, it’s just not the best timing and in here, in the stock market, you are looking the same thing. You are evaluating multiple time frames to see when the best condition is?
If you have multiple things lining up, if you got the daily lining up, if you got the weekly chart lining up, if you got the monthly lining up, if everything is telling you that this stock is ready to go, if it is lining up correctly, then you go, then that is the time you buy. But if things are not lining up, then there is no way that you trade the stock. So looking at this stock: when were things lining up?
If I look at the monthly, there are a couple of places that I am looking at. Already there is some over here. The prices are a little bit stretched, you might want to go to a log chart and that kind of cleans things up a little bit but we will do arithmetic still and that way you can see. But you might have a little bit of a thing right here that is lining up in 2010. You also have, for a long-term investing, right here at the 2014-2015 descending trend line.
Then as you go into the weekly, you can see this descending trend line right here, and then it breaks, and it breaks on what? What do I always talk about? The volume. And it breaks out and if you missed it right there, what you could have done is draw a line across, and you can see you had a little consolidation pattern. You draw that line across and, even if you went to the highs in 2014, you could see right there, the stock lined up. Lined up correctly and that was your perfect timing.
Nothing is perfect
In the market there is nothing perfect, I mean, I say perfect timing, but that is more ideal. Even if you missed that one, you had another opportunity here. A little consolidation pattern, a bit better timing and that stock broke a little bit higher so you could have gone in that time frame or again you had another little opportunity a little bit later. You are always looking at these little patterns of how they’ve been created within the monthly chart, then the weekly. And if I split to a day, you can see how that works out the same way.
Maybe in April, May or June. Back here, there was the break, there is the volume, and you can see it. Perhaps right here you wouldn’t have gotten in on May, and that is just because of a large gap, but the stock here pulled back into that level, and it held the support, and that would have been your opportunity because it is holding to those price levels.
And then again, you had another opportunity breaking higher and if you look at the volume and if I stretched the volume, look at the volume right here, how big it is coming into the stock.
Again looking at timing right there helps out and if you have those things in your favor, multiple conditions, more power to you. Then you have everything in alignment, and it’s all working, and that works out well.
You don’t need to be too precise with timing
Looking at timing is the number one condition that I wanted to discuss and of course, you could look at the timing as far as the time of the day to trade, such as morning, afternoon or later towards the evening sessions, but that is on a day to day shorter-term basis. In general looking at these bigger scopes, if you have the more significant time frame correct, then, by all means, you can go ahead almost at any time.
For example, if you are going on a trip, and you are trying to hit low season as long as you are in low season, depending on the country you are going, whether it’s the southern hemisphere or the northern hemisphere, but if you are hitting between January and March, that is probably lower peak session here in the northern hemisphere, so it really doesn’t matter if you go on February or March.
Same thing here, it doesn’t matter if you go tomorrow, the next day or the day after if you have the timing proper. But if you are going during the summer months, when everybody else wants to go, now you are trying to time on a shorter time basis. Whereas: Ok, maybe I go on Monday to Friday on my vacation because there are fewer people or maybe people are working during the weekdays. Those are things you might be considering but again, here with the timing, if you have kind of a good range you don’t have to worry about hitting a precise day to get that timing correct.
Similar to how some people spend Christmas and they do their Christmas gifts actually after Christmas. They do it after January 1st to time the discounts and sales with all the retailers, it is a weird dynamic but it works, and you are timing it a lot better, so you get a lot of more savings.
The external conditions
In either case, the next kind of condition that I want to talk about are the external conditions or kind of weather conditions or the road conditions.
As you are looking at this stock, there’s other things and factors that you have to take a look at. The same thing with the market, as we look into the market, you are looking at multiple factors and conditions.
For example, right now we have the interest rate that is going on, and that is happening. The Fed is scared to raise interest rates, so we have these conditions that are happening. We also have global conditions that are happening. We have negative interest rates with Japan and many other countries. We have banks that are kind of in that defaulting stage. We have countries in that defaulting stage.
The market moves based on perception
We are in a weird dynamic condition, as far as the global economy, so you start looking at that, and you say: Ok, should we be making all-time highs on the relative basis? How great is unemployment relative to the past? How high is the economy relative to the past? And that is the thing. Is that the market doesn’t always move based on the economy, it moves based on the perception of things and based on fear and greed, supply and demand.
With this in mind, if you have the Federal Reserve like right now we have the Fed not wanting to raise interest rates, they are a little bit scared, and they have that fear in them, then the market is not going to be that scary. Because the traders believe that if they are not going to raise rates if they are too scared, the economy is not in that great of a position. By all means, they are going to prop it up, they might do more quantitative easing, and they might go ahead and pump more money into the system. So we continue to inflate prices further and further because the Fed has your back.
Because what happens is with these Federal Reserve boards, with a lot of these things, it’s like a hot potato; nobody wants to be the one that says: we are going to go to interest rates 5% within the next year and you start raising interest rates every couple of months, and you get to that price level.
Because if you did that there would be a lot of people in a panic state, the economy wouldn’t be stimulated, people would not spend money as much, and you wouldn’t buy those brand new cars. But that also means that a lot of people would have to make do with what they have and I think that is a good thing because a lot of people are overextended on their credit lines. That is what happens though, is when the Fed has your back and when nobody wants to raise interest rates, because they don’t want to be the ones to raise interest rates and have the economy or the stock market collapse, because now you have people retirements in your hands and things like that.
The market is being propped up
They are trying to keep it propped up, they are trying to keep it stable, and this happens with a lot of the bailouts that occur. This is what they do. They prop markets up. That is why markets typically go up rather than down, but when they sell off, they sell off in a big way. They sell off faster than they push higher.
In this case, when you have these markets being propped up, you are looking at the external conditions. These external conditions: is it rainy? Is it sunny? Is it cloudy? Is there a storm happening? What is going on in the market?
For us right now, if you are looking at the market conditions, things are being propped up. I wouldn’t say it’s sunny, but it’s kind of in a way, if you are driving and it’s sunny, it’s probably not the best condition. If it is a little cloudy, I like driving in cloudy conditions, because the sun is not hitting you, it is not hot on your side or that side of your body, depending on where your sun is. If it is not raining, it’s a lot better. Cloudy driving to me is just a better way to drive.
But ideally what is happening now with the markets, what they are doing is, they are creating and giving you sunglasses when it is sunny or when it is stormy. Or if it is storming like, there is a lot of snow happening, your windshields wipers are going crazy, but it is still stormy outside, so you still have to be careful.
What they are doing right now is they are really propping up these markets, and they are taping a little sunshine to your mirror or visor, or they are given you some sunglasses and saying: ‘’Hey, here are some sunglasses so deal with it, it is fine, everything is good to go, so by all means keep trading, keep buying stocks’’. That is what is happening.
Companies are cutting jobs
When I look at the global economy being here at all-time highs, when you have negative interest rates, when you have company earnings down, the way these companies are hitting revenues is they are cutting jobs. Just take a look, they are cutting jobs, and by cutting jobs, it allows the profits to be a little bit better. They can make and hit their earnings target.
The other thing they do is they ship more products earlier. For example, one company may send more products to another company in this quarter, and it might be ok in this quarter, and then they will deal with the next quarter later even though that might hurt them in the next quarter because now that next company that they deal business with has a more significant supply of those products and services that they didn’t really need that month. That is what they do, they go ahead and ship things earlier, all the big corporations do that, but it is manipulated. Even though some things may seem better and Rosie, you have to remember to take those rose color glasses off and see the bigger picture.
Decide the best time to trade based on the external factors
Here I am looking at those external conditions: are there things on the roadway? Are there hazards? What is going on with the economy? What is the Fed doing? Are they scared? Are they panicking? Are they moving and treading slowly? And then, you are looking at all these things, and you still have all these factors in the back of your mind about the more important term view — the bigger picture.
When was the last time you had a significant pullback? A major one like 2009, you take a look here in 2009, or 2000. When was the last time you had a significant pullback? You haven’t had it for a while. We are over here coming in all-time highs. Can the market go higher? And if I look at it, is it likely for it to get to 3000 very soon? I mean, imagine a market getting back up to 3000.
Pullbacks give you more opportunities
To me I’d be a little nervous considering, from 2000, for the 2000 year, getting all the way to 3000 right there, without a significant pullback, I’d say it’d be a little bit dangerous, and a little bit stretched. I would love it to get back to 1550 over here, if I am looking at the bigger picture, to bounce off of that 1550 and then go higher. That would be more realistic, that would be healthier. You could make money trading to the upside-downside, it creates better charts, it allows you to create more opportunities. I am always looking for those pullbacks because they give you more opportunities.
When the market is barely moving or trading if you look at the VIX and I am looking the volatility at eleven, if it barely moves around, professionals don’t like this, because if the market doesn’t move, you are not making a lot of money. You might be able to make some money for dividends and time decay of options premiums, but you are not making great money on the price movements.
It is a lot better when the market is moving around because you can take some things into account and buy at lower prices, like here on the Brexit dip and stock market popped or here in the January-February dip and the stock market popped.
Looking and evaluating these external conditions you start taking that into account, and you add the timing to it, and now you start looking at your decision: do I buy? Do I sell it? Do I hold? And again, or do you kind of trade very little, if you are the person that needs to be on the market. For me I am very active in the market, I wouldn’t say I am a day trader because I don’t trade every single day, but I might put on 4 or 5 trades a week, no problem.
I might put on 15 or 20 trades a week if the conditions are right. It depends. In certain situations, I might only do 1 or 2 trades because it’s a little bit more concerning.
In conditions like this, where the market hasn’t done much if you look at it right here, it is just moving slightly sideways right here, but kind of to the upside and in a very tight range, and that is because of the VIX.
If you look at the Bollinger Bands and you look at the daily Bollinger Bands you can see how we were much more volatile or spread out, which this takes into account the price spread of the bars, so as you can see right up here there was a more significant, larger spread whereas compared to where we are currently, it’s a lot tighter, which means the price movement is going to be a lot weaker.
During these cases I am just sitting, I am sitting around, I mean I have a position, but I am not trading as actively because what do you do? What do you get into? It’s moving five cents ten cents.
I’d much rather take my time and enjoy myself and do a craft project, record another video, like the videos for our sessions and training educational sessions or even write a book. It’s much more favorable, and once the market picks up or you have a beautiful little down day, then you can go ahead into those conditions, and it’s favorable, the volatility picks up, and it’s like: All right well, things are going to move a bit.
You are evaluating these conditions, and you are starting to be aware of what is happening based on all these factors. We have the time, is the first condition, then after the time you are looking at the external conditions, like here you have the global economy, the Fed, the dollar, all these things, the default, the interest rates, all those things you are taking into account, and you start putting all these things together. You got this thing plus this thing, now what’s next? What is the next thing I look at?
The internal conditions
The next thing I look at is how I am doing during the day, the week or the month. Typically my emotions are very controlled in the market. I balance out that way due to in part the martial arts, due to in part just my natural behavior or my personality. I’ve been very mellow, and that’s just the way I am.
When I look at the market, the other thing you always need to considered and be aware of is how you are personally internally. Are you antsier? The person that right now feels: I’ve got to make some money because I need to buy some groceries or I’ve got to make some money because I want to get a new camera. If you have this feeling, then chances are you are going to put yourself on a much riskier position and in a much more dangerous position. Those are some things you need to be aware of.
Sometimes if you are trading angry, if you are trading with a high degree of greed, if you need the money, if you are in a fearful state, you are scared because you’ve lost a lot in another trade and now you are trying to make it back. These are all internal emotions, similar to how we talked about external conditions; you got these internal conditions that also will be affected in your account.
Maintain a calmed and content state of mind
When we are talking about looking at the stock market conditions and your trading conditions, this is all part of it. You have those external conditions, you have these internal conditions, you have the timing, and of course there are other conditions and factors that’ll creep in, but ideally, you want to be in a content and well-being state. Not to where, if you go to your favorite restaurant, not to the point where you are like: ‘’Mmm the steak’’, ‘’Mmm the sushi’’ or whatever it is that you like or enjoy. You are not at that state, you are more of like: ‘’Ok, I’m at dinner, we are going to have dinner, and that’s that’’.
If you find yourself in those states of where you are mentally just a little too extreme to one side or the other side it can be really dangerous. That one is probably the most difficult is the internal state — internal conditions to hone in and figure out. Instead what you want to do is find out that balanced well-being state. And that is where you ideally want to be.
Looking at the market, you got the timing conditions that you are looking at because you are holding that stock for a certain period, just like the road conditions or your driving conditions; you are looking at how long you are going to drive for. If you are driving from Florida to California then your holding time is probably a long time, you need to make sure you are looking at longer time charts. If you are driving from your house to the store, you have a shorter time frame.
The same thing at stocks, you are looking at shorter time frames as far as making your big decisions, but you still want to take into account the weekly and the monthly because you still want to understand what is going on. Do you want to know: Ok, are there other things that could create problems? With the external conditions, this could be like hazards on the roadways. This could be the weather, the sunny, the cloudy, the rainy things. You are always looking at those other things as well.
If you’re not in a good mental state, don’t trade
Finally, the internal factors, if you are just completely in chaos, if you are just entirely feeling down, if you are not at a lovely even mental clarity state, don’t trade. You want to be in excellent well-being calmed state, that’s when you want to trade. If you are overly happy, if you are excessively sad, if you are angry, those are not the times to be trading or making trading decisions.
A lot of times it’s better to say: ‘’Whoa, I am out. Step back. Don’t do anything. Shut the screens down and let your position sit’’ and often they’ll either come back, or they will bounce back. What would happen to me, what used to happen was that, I would get into a position and if I got scared and it pulls back, and then I get out of that position and then all of the sudden it bounces the next day, and I was perfectly fine. That was just simply because of my internal problems.
Those are some things that you want to take a look at as far as conditions go. I didn’t go in detail in as much detail as I wanted to in all of this because it’s just a massive amount of topics and concepts to cover. But you want to do some more studying about the different time frames, look at the different time frames as you are trading, don’t just look at the 5 minutes, 15 minutes, the hourly or just the daily. Start putting in the weekly time frame, start putting in the monthly time frame, look at those things.
Look for what’s logical and normal
Look at the external conditions. How is the market doing from the Federal Reserve, from the global standpoint? Should you be at these levels? Should you be at these higher prices/lower prices? Is a pullback healthy? Is it normal like the rubber band effect? What’s normal? What’s logical as far as from the big picture view? If you had no rainy days, for 15 days straight, it’s probably more a likely, more probable, statistically probable, that a rainy day is probably around the corner unless you are in the desert or something like that.
In general, you are looking at those things. What are those conditions? The other external weather conditions. What’s the likeliness of those things happening? And finally the internal conditions: internally how are you doing? Angry? Stressed? Happy? Joyous? Whatever it is, you are looking for a condition where you are a little bit more stable, content, where you have that well-being, that’s ideally how you want to trade?
I hope this video was helpful. If you enjoyed the new video format go ahead and give me thumbs up and that way I know that I can continue sharing videos like this. It does take a little bit more time to set these things up, but hopefully, you got a lot more knowledge, maybe by seeing me, by me sharing some things and just visually with the hand signs get a little bit more detail regarding the communication gap that we have through the internet.