Hey this is Sasha Evdakov, it is December 10th 2015, and I want to welcome you to the let’s talk stocks session.
In this week’s lesson, what I’d like to focus on is delayed gratification in stocks. Holding back your instant gratification urge when trading.
I find that a lot of traders and a lot of people that get into the market have a real problem when it comes to their inner game, and if you haven’t heard me talk about the inner game and the outer game of trading, just keep in mind that the inner game of trading has to do with things that are internal to you, your psychology, your mentality, your focus, your discipline, whereas the outer game of trading has to do with the physical aspects of trading, such as learning technical analysis, learning the tools of your trading platform and all those other things that are external to you.
A lot of traders, from what I see, have a major issue with instant gratification, or some people like to call this the shiny object syndrome. That’s the topic of discussion for this week.
News about the market
Before we get in detail into this topic and lesson, I do want to run by the S&P 500, the news, the reaction and what’s going on and what’s happening in the markets currently.
Looking at the S&P 500, I’ve talked about this dozens of times, but I do want to give you an update to make sure we’re all in sync of what’s going on and what’s happening in the market.
If you take a look at the support line and region that we drew across here, across this line, you can see that is a major critical support line, and then we have our resistance line right here, right around that 2135 level.
Things right now are a little bit unclear, as to what’s going to happen and when things are a little bit unclear, then things become a little more volatile.
This is in part due to interest rates, due to Janet Yellen, due to in part the economy of the world as well, so the Pies for the last year have been right around this region.
You can see if we take things back and bring it back to January of 2015, stocks have not broken higher past this 2135 level, and that’s going to be some major overhead resistance.
If we break that level, then we could see higher prices, and I would say don’t get in at 2135, you might want to wait until 2144 or 2143, just to give it a little bit of cushion, because you’re looking for multiple points to the upside.
For example if we were to expand our chart a little bit, you’re probably looking for let’s say another 100 point run. So why chase or why try to get into that stock with just a one dollar or one point additional move?
Because what’s going to happen is you’ll notice here what happened on Friday, November 13th 2015, or November 16th of 2015 on Monday is that the stocks broke this 2040 price level and we went down about a couple of extra points. We went down about an extra 10, 13 points, and then the stocks bounced, similar to what happened yesterday, or the previous day on December 9th 2015.
We dipped right below that price level of 2040 and we went down to the lower price level, 2036 and then we bounced off of that.
Pay close attention to this level, because you have to remember that how high these things can go is based on the rubber band factor, it’s how far stretched are things and are prices.
Typically it takes time to consolidate and digest a large pop or a large move, and you need something major to accelerate the stocks to the upside, so my prediction is that it would be healthier for the market, for it to roll over and break this to move lower.
Trading during holidays
With the holidays, I’ve talked about this in the critical charts, we released a video for the critical charts members this week as well, is that during the holidays I typically pair down my positions.
And that is just a personal thing that I do just because I want to be a little bit more clear minded and we’ll have some options spreads in there, maybe calendar spreads for the retirement account. But besides active trading, we do have less and less positions in terms of my overall accounts and the accounts that I watch between my family’s accounts.
We do have a lot less positions on right now for those reasons, but you also want to pay close attention that things do happen during holidays, and if you’re actively trading, you want to be mindful that positions get rotated in order to window address those positions and give you a view of what’s going on and what’s happening, this is what the hedge funds actually do, they rotate these positions out.
The more likely scenario is that stocks will roll over, and that is a healthier move, however, if they do break higher for me, I am waiting for the 2144, 2146 price level in the S&P to make It more confirmed and believable along with price action and behavior.
When looking at behavior, looking at the current day, and this is why my analysis is what it is, the current day today, we had major swings in the market, so if we take a look at what happened here, we basically popped 17, 18 points on the S&P, in fact up to about 20 points on the S&P, but then we sold off about 13, 16 points, so volatility is there, there’s more movement in the market, and that’s because of positions rolling over and changing hands. When things like this happen, you’re watching at what happens through the day.
If I look at this bar alone in the behavior, I evaluate it and what does that bar teach me? I’m looking at all the other things as well, I’m looking at the overall chart, but if I zoom in on today’s action, even though to me this is a green bar, the colors don’t matter that much, I can make this chart black and white, the important point to know is here, this opening price and the closing price and what it did in between, so read it like a footprint, read it like a map.
You can see that it opened right here at 2047, we got to the highs of 2067 that’s basically exactly a 20 point run, and we closed right here, the close was 2052, so you basically gained from the open 2047 to 2052 you gained just a hand full of points, that to me shows weakness, meaning stocks went higher and then they sold off again, so you got only 4.61 points on the gain, and that shows weakness to me, and the volume is weaker, if we look at the previous day, you had one million shares on the S&P, you have 872 on the S&P now for today.
Typically TC200 or Worden doesn’t give the best volume on the S&P, you have to look at the spiders, so looking at the spiders here you have 162.4 million and then looking at it 115 million to the upside.
In this week’s analysis for the spiders, hopefully this was more in depth, that doesn’t mean that we can’t go higher and retest these higher price levels again, right around that 2130, 2140 level, but what are the percentages for it to go higher vs. for it to go back and sell off?
We’re already at highs, so for me the risk to reward is more in the favor to the down side, and more so especially if it starts selling off and breaking these levels, especially the 2020, 2014 level, it could come back down to this 1900 level to retest those price levels.
Hopefully that gives you an insight to the markets, of course you can trade individual stocks, and we talked about these before, looking at the Googles, you can see the rounding off and the Amazons, which was one of my best stocks here of the year, you can see that it’s rolling over or consolidating here, because you have to be patient and wait for these things that need to come out like Janet Yellen, like all the chaos that’s happening in the world, the interest rates, what’s going to happen there?
There’s going to be some volatility, so you have to be patient, and that is what this week’s lesson is all about. It’s about being patient and holding back your instant gratification urge when trading.
The fact is that many people, when they get into trades, are not patient, they’re not patient for two main reasons, number one they aren’t patient for the right setups, because they chase to go after stocks that are ready, stocks that don’t have appropriate or proper setups, meaning they are weak trades, they are weak investments and they weren’t setup correctly.
The second thing is that they don’t allow their trades to run, meaning they don’t have patience to sit and be patient in the trade. If you’re trading option contracts, this would be to be patient in your calendar spread or iron condor or diagonal spread to give it that ten or twenty or forty days and allow it to run or decay in beta.
If you’re just trading strictly stocks, then we’re talking about allowing it to run to the upside, such as we talked about Netflix here before, getting it in right here at the 116 level, allowing it to run, being patient, holding the stock for 15, 16 days, 17 days, 18 days if you want. And allowing it to run.
For some people that’s very difficult to do, it’s very difficult for them to hold the stock for that long, because they don’t have the patience.
If you want to really teach yourself some patience in the markets, go ahead and just buy one share of something and then watch it every single day and have the patience to hold on to it and allow it to run and do the trade and execute it properly.
Yes, of course this is going to cost you some commissions, but it’s going to teach you a very valuable lesson in patience within the market, something that many people lack and you have to learn to be patient, to allow those trades to run, to allow you to have and find those appropriate setups.
Don’t trade based on the news
Because many people what they’ll do is they’ll go ahead and search for stocks or which one is going higher, which one is the news talking about, such as if it’s GoPro today, some days it might be Alibaba, some days it might be twitter.
They get into these stocks because “oh my goodness, twitter is popping 6% today, so let me get in it” and this is how the typical trader will trade, it’s they’ll trade off of the news, whether that’s trading companies like Cyber, Whether that’s trading companies like home depot, powering higher for the day or lower, or the lows. They’ll get into a stock because of the news, because of what’s out there and because they’re influenced from other people.
But you can learn to master the art of being patient, getting into the right setups and delaying that gratification and then also being patient to allow your trades to run, delay the gratification.
Because of course if your stock is moving and running, and you’re profitable right here for multiple days, you can delay that gratification further and potentially capture further runs, further profits if you just wait, if you just be patient.
It is said that Thomas Edison took a very long time to invent the light bulb, at least he wasn’t the primary person that invented the light bulb, but he invented the light bulb for a wide consumer use, so it took him, they say, up to a thousand times to fail in order to create this success.
There’s a lot of different quotes out there that talk about Thomas Edison and that he said “I didn’t really fail a thousand times, but I really just invented a thousand steps or had a thousand steps to create the light bulb”.
Cause and effect
Can you imagine how patient someone has to be to work on a single idea and bring it to life?. It’s not just about patience, it’s about being focus, a lot of other things come together to accomplish something like that, and most people they cannot see the bigger picture, or they only really see things from one side, they see it very quickly, we’re a very reactive society in the way that something happens, cause, and then we react to it or the effect.
The thing about the world is that there’s multiple things that create an effect, cause and effect, it’s not really linear in our world, so meaning volume, just because there’s volume in a stock, it doesn’t mean it can’t change around and go in the other direction.
I do preach this a lot, because it’s a starting point, but when you look at things and zoom out, there’s really multiple causes to create an effect, or something to happen, and most people cannot see that, and that’s because they’re a little bit blinded, there’s something that covers them up from seeing those things, and if you’ve ever seen the two way mirrors, being able to see other people’s actions and behaviors when they don’t believe anyone’s looking, they really do act and behave a lot differently.
Most people they can’t even really see their own personal behavior, and if they do, they are typically not honest about it and they won’t take action to make the changes for the better.
Typically what I like to do and what I normally say is that if you really want to see how you act and behave, and your actions, film yourself for the day.
Take out a video camera and film yourself, whether that’s doing trades or writing books or doing any kind of process that you’re looking to become better at, it’s to be able to see yourself from a third persons perspective. It’s called kind of like a third person’s point of view, so if you’re seeing yourself from an outside person’s point of view, and look at the film and footage, you can evaluate yourself a little bit better at your behavior.
Tweak and improve things
This is one of the reasons why I’m fairly productive, at least I believe I’m fairly productive and many people say they have no idea how I’m able to accomplish these things, but it’s because I’ve tweaked things over my life to make it more efficient, to speed up the process in order to write multiple books, in order to create multiple training courses, it’s because every year or two, I like to film myself for a couple of days and evaluate myself.
This is really a time taking process, but it really allows you to stand back and see what it is that you can improve on, and if you’re clear minded and approaching it with an open mind, you can see “ok, this things you’re working on and you’re doing it very well, but maybe this thing over here, you need to improve on. So how is it that I can take this process that takes a large portion of my resources, such as my time, and I can just fine-tune it or make it better?” And most people don’t do that.
Number one, they won’t see themselves from the outer perspective when it comes to trading, when it comes to their own actions, and number two they won’t even take it a step further to actually physically film themselves to continue to improve and get better.
And if you want to know the secrets, that is one of the things and one of the ways to do it.
One of the things that I really got a lot out of doing this process and going through this process of filming myself from an outer perspective is noticing how much time certain things and tasks take.
When you start recognizing this, you’re allowed to, or you’re better off by cutting out certain things, so for example one of the things that I do now in terms of filming is, I have everything set up and when I go ahead and turn on a button, just one of the search protector buttons, all the lights come on, so we have a dedicated filming studio that’s already set up. This way I don’t have to take it down and then put it back up when I’m doing the filming and recording.
Another thing or another process for this would be that all the shirts and all the clothing that I actually wear within the filming area, I have multiple shirts that are exactly the same and identical from color to color, so I will have two or three blues, two or three purples, three or four lavenders and so on, so I can just go ahead, pick a shirt and if one is in the laundry or a couple are in the laundry, we have that exact same color already ready to go, so that just allows me to constantly be able to continue to film and that way I don’t have to take that process on my mind or brain to make a decision of what to wear.
It’s interesting when I went to a seminar on day, there was a guy by the name of Dean Jackson, which was a marketing seminar, and he said “when I’m going on a trip, when I go and it’s a five day trip, I just take my five shorts, and I take my five shirts and I’m ready to go, because I already know exactly what I’m going to wear, it’s very simple to pack, and I save all that time packing. I save all that time choosing and picking out my wardrobe”.
And it’s just something that really resonated with me and starting to tweak and improve things, you start to get a better sense of how to speed up that process, how to fine-tune process and you need to start evaluating these processes in your trading.
Get a trading journal
Looking and recording yourself is one of the ways to do that, having a trading journal is another way that really helps typically in the initial starting point, and that’s why if you’ve seen a lot of other traders, if you’ve talked to them, read their books, if you went and attend their seminars, a lot of them will talk about a trading journal. And that’s really the same concept of evaluating yourself and getting an understanding of what’s going on or what’s happening within your environment.
Taking it a step further, really filming yourself is where things will start to come to the fore front, because you’ll get probably that “aha” moment and you’ll probably want to make some changes. Now, going a step further, just because you want to make changes, doesn’t mean you’re going to make changes.
The shiny object syndrome
A lot of people they stop right there. So you need to take action as quickly as possible and a lot of times we’re programed by the shiny objects, these shiny objects that come our way.
One of the other things that I have found over the years is that similar to the shiny object syndrome is that there’s a lot of influences and external influences from society that really change our behavior and pattern.
Just because someone says something, or just because someone mentions a certain stock, we tend to get attracted to it. Because we want and we crave that instant gratification, and we crave a benefit or reward from that stock, and if we go ahead and not enter or we go ahead and don’t do the action and the stock actually ends up continuing to run up higher, we feel like we’ve missed the opportunity.
Learn to let go
One of the things that you can really do in order to get a little bit of a better sense from this is to start being able to let go of things, being able to deal with loss or missed opportunities.
For example, there’s two different types of losses here. It’s kind of like the fear of failure and fear of success model, if you take that approach. A lot of people have fear of failure or know about being afraid of failing. But not a lot of people always know about being afraid of success.
If we take this approach, a lot of people are afraid of the missed opportunities, they’re scared to miss those opportunities or miss those positives gains.
One of the quotes that I always like and I’m not exactly sure who came up with this quote is that “Success is when opportunity meets experience. Or when experience meets opportunity”.
I like this quote because if you’ve passed on a lot of opportunities or you’ve passed on a lot of stock trades and you just didn’t trade them and you didn’t execute them, it really builds your patience model, it builds your delayed gratification endurance to be able to wait for the right setups.
And initially what’s really interesting about this is it’s really counter intuitive, because initially you actually have to be even more patient at the beginning, because you aren’t as clear minded as what’s going on or what’s happening in the markets.
As you become more experienced, you have more trading opportunities, because you have more tools, you have more things and resources at your disposal. You’re able to see charts better and you’re able to scan quicker, that means you’re able to trade more.
You actually have to be less patient when you are more experienced, which is kind of a funny dynamic, which is why it makes it so much more difficult when you’re just getting started to be patient and execute trades, to delay that gratification.
If you can learn to hold back from society, and kind of get away from some of those external influences and just pass those, pass those wining moments, pass those positive wins and gains or positive trades, even if you miss them, you have to learn to let them go, there’s always going to be another trade in the future.
You have to learn to continue saying the word next, because there’s another trade just over the horizon or the next day.
From a lot of these external influences, I tend to see it a lot in the business dynamics, meaning in the online business space, where a lot of people say you should be on twitter, then you need to be on Instagram, then Pintrest, then Youtube, then Facebook. And I stuck with the Youtube platform for so long, just because I feel the teaching behind it, behind the teaching platform is the most effective and the best way to present an educational material or an educational piece and to communicate an idea. I find that it’s one of the better ways.
Whereas when I look at Facebook or Instagram and all these things, all these just drain my own personal resources, and especially with Facebook. If I posted every single day, I wouldn’t have time to do anything else and not to mention after about 48 hours to 72 hours, most people don’t go back and look at the older posts from four or five years ago, so that material is not even searchable at this point.
And in the business space, as you develop your own business, if you’re into developing your own business or online business, then there’s a lot of people that will talk to you about the different tools that they have. From quick books, to the hosting company, to a conversion tracker, to the AV tester, to a shopping card, to this keyword research tool that you need to have in order to be successful online.
And for me personally, and honestly, I very limited use any of those tools. We basically have a newsletter list, we have a website and we have a shopping card and payment system, but in terms of researching my keywords, in terms of doing AV testing and seeing which color button works better for people purchasing our products, I don’t waste my time and energy on.
That’s simply because I don’t care to have the external influences influencing me on my decision. Not to mention I find that the better use of my time, I could either spend time testing, to see if the color red or the color green button works out better for you in order to purchase and get more conversions and sales, or I could simply go ahead and spend that time creating another course, creating more free training, writing another book or whatever it is that I feel adds more value than just creating and generating more sales.
In my business I personally don’t use any of that stuff for the time being. Maybe in the future if we get more team mates or something like that, maybe they can handle those kinds of things, but right now it’s really not relevant and it’s not a priority.
One thing to keep in mind, how this really applies to the market is that there’s going to be a lot of these external influences from the type of car that you purchase, from the type of clothing that you wear to the types of stocks that you buy and you need to get rid of it.
Even the ones that I mention on the critical charts, whether that’s a video on the critical charts, or whether that’s the charts that are actually photo based charts with commentary on it, you need to do your own homework, these are only suggestions and these are only filtered through my own personal mindset.
If you studied my green course and my blue course, my green course, meaning the stock trading foundation course, and my blue course, the technical analysis course, which is really in depth, that should give you a good idea of the type of trading that I do, or my mentality, psychology and the way that I trade. So if you can connect and relate, then in that way or in that hand those charts would be more helpful.
But if you’re brand new, you don’t understand the way that I trade, you don’t understand why I choose the stocks that I choose and the style of trading, then it’s best that you don’t go ahead and follow the critical charts, because it wouldn’t make sense to you, because you’re not aware of what’s going on and what’s happening.
You only see things as a reflection, just like in the two way mirror, you only see things in one way, just like a regular mirror, you see the reflection of only yourself and what you want to see in those charts. You’re not going to see it from the other perspective.
Keep in mind that a lot of things are going to influence you in the markets. A lot of it has to do with news, a lot of it has to do with popularity contests that are socially programmed within our own mind, and the we also have our own risk tolerances and our own programmed behaviors from our childhoods to the way that we grew up and developed, and now we start chasing after things.
If you’re one of those people that are attracted to constantly chase every single thing and you’re not patient in waiting for the right setups, and you’re not patient to allow those trades to run and continue to profit for you, then it’s going to be a very difficult business for you. Because it’s one of those things that you show the result right away when it comes to trading.
You’ll see your losses very quickly and it’ll tell you the truth, it’s going to have that effect, it’s going to be the reaction of your actions.
Make your own decisions
In the end my goal for you is to find yourself, so that way you can make your own trading decisions and not rely on anyone else. My goal for you is to not be influenced from all these external influences that happen and occur.
Whether that’s in stock trading r actually in the real world where all things start influencing us and there’s so much content, media, and there’s so much energy that gets put on to you and starts changing and modifying your behavior.
If it does, hopefully it’s for the better. Hopefully you’re modifying your behavior for the better and growing so that way you can continue to learn to benefit others and you can continue to just get better but rather than being influenced into other things that are not as valuable, that is something that you want to avoid.
As a business example, for me, I don’t really focus on all these social media platforms, I think there’s like 10 or 15 of them, and we focus on one or two primary mediums and that’s about it.
But I know that there’s a lot of other things that are probably missed opportunities that we aren’t generating from those, but they simply don’t fit and don’t work for me. And for you in your trading, you have to look at certain stocks the same exact way. Certain things they just may not fit for you, so you have to go ahead and think next.
If you remember the word next, think next, “that stock is not for me, next” It’s a missed opportunity but let It go.
Be able to let these things go and you’ll see a massive large improvement in your trading when you’re able to let these things go, delay your gratification and get rid of that instant gratification urge when you’re trading.