“I bought Amazon stock” she tells me.
At the time I knew that Amazon stock (AMZN) was trading at or near its all time highs. Inside of me I debated whether I should tell her or not.
Tell her what you wonder?
That she should not be buying Amazon stock at or near the all time highs.
I had traded AMZN profitably in 2016 and I knew that the way to profit from it was not to buy at such elevated prices. I knew that the better strategy was to wait for a retracement and then if you are still bullish on the stock, to get in. And then when the stock reached new all time highs, to take profit. That is the strategy I used in 2016 to profit from being long Amazon. (this is a timing model I call The Macro Model and it is revealed in the Order Flow Mastery Course)
So when I was selling and taking profit on Amazon stock, she was buying it at the all time highs, where the reward to risk ratio and win rate of the trade was much lower compared to those who bought it on a dip.
However, I was over her home and to be polite, did not tell her these things. I didn’t want to burst her bubble. She’s a single mom, freshly divorced.
Instead I encouraged her, told her that it was fascinating that she was getting into stocks, etc. (Recently, I have had several females and males that don’t normally ask me about the stock market, ask me about it, simply because stocks keep making new highs and they see it in the news, etc)
She asked me what stocks I owned, and I told her my biggest bet at the time was Apple stock (AAPL).
A Few Months Later
I saw her a few months later and talked to her.
She told me how she had bought Snapchat stock after the IPO.
She told me how she had bought AAPL stock as well because I told her about it.
And how she had bought all these other stocks of companies because she knows about the company and/or uses its products.
What Not To Do In Trading Stocks
She has just given us some perfect examples of what NOT to do when trading stocks.
First, she bought Amazon stock at or near the all time highs, which, even though the stock has risen, is a poor timing strategy.
Next she bought into the Snapchat IPO, it seems for no other reason than it was “in the news.”
Next she bought AAPL stock just because I mentioned it. She never asked the reasons why I had bought it, the price I got it, whether I thought it was a good idea to get in at the elevated prices, or what position size to use. Just because someone she knew was smart and successful mentioned they owned it, she got in.
And then she proceeded to buy all these other company stocks just because she knows them and/or uses their products. It’s like me deciding to buy Macy’s stock, just because “I know the company and shop their from time to time.” Well, what the heck does that really mean? If I had followed that line of thinking for the past two years, I would have lost money as Macy’s stock has fallen from the $60’s to the $20’s.
Questions To Think About
Where is the REAL entry and exist strategy?
Where is the analysis to determine if there are real prospects for future price appreciation?
Where is the analysis to determine if a different company in the same industry represents a better opportunity?
Where is the analysis to determine if the current price is the right price to get in or better to wait for a dip?
Where is the analysis to determine the optimum position size?
She is flying blind on excitement, hopes and prayers. There is close to zero rationality and logic in her decisions. Hoping that the equity bull market brings a rising tide to all of her stock positions. That is what she is hoping for. And long enough for her to take profit.
How can you expect to have a real, sustained trading edge with such a philosophy? Quite frankly, a lot of amateurs in the market, whether they are twenty years old or fifty years old can make such mistakes.
That’s why I told her: “Have fun with it. Get your thrills.”
Because she can’t seriously expect to make sustained money from it. Though, she can expect to get her thrills from it.
Becoming a Pro Trader
The top traders are more sophisticated than that.
You can develop a much stronger philosophy and trading game plan than the one that she has. You can develop a much better timing model to know when to get in and out.
You can know how to better judge IPO’s and whether you should wait.
You can isolate the reasons why a successful trader has placed or has on a particular trade, and then extract the principles and implement them to find the next great trade.
You can choose not to buy companies just because you know them and/or use their products.
You can be smarter than that. It doesn’t take very long. Just thirty or sixty minutes of the proper lessons and strategies and you are well on your way.
With those two courses, you can move towards systemizing your trading system. You learn how to take your intuition, your emotions, your gut feelings, and put it into a methodology. I have already done that for you.
I used to think when I first started that all the emotions I were feeling about these trade signals could never be systemized. Well, that wasn’t true. I could most certainly explain to myself and others why I made the decisions I made, and put it into principles, rules and daily habits to follow. You can do the same.
On a side note, I am most definitely an advocate of getting excited, putting emotion and passion into your trading, etc. If you ever watch the Paul Tudor Jones documentary, you will see a level of intensity and energy in his order placement. Almost as it with the more energy and intensity he puts out, he can “will” the market to move in his favor.
So I am an advocate for excitement, heck even irrational excitement for a brief moment or two to break down barriers that you may deem impossible. But not consistent irrational excitement. That’s delusion.
She seemed to be looking for some pride in her life. The pride and self respect that comes from her knowledge and mind growing. Her horizons were expanding. And making some money in her trading account, that seeing of the GREEN $$$ signs of profit, well, lets be honest – it feels really, really good.
It is such a shame though. She could really be smart about it and turn it into a real career. Whether full time or part time career.
For there are some money managers (with smaller amounts than larger hedge funds), especially in the equity market where they manage money, but only a part time basis. Say weekly analysis and decision making, rather than every day. They do weekly analysis and decision making, rather than every day. And if the equity market is booming like it has been over the past few years, the money managers can produce good returns and earn a profit on not only their own money, but the money of the clients they manage as well. This swing trading and position trading, even though the analysis is done on a weekly basis rather than more actively every day, can produce good returns in such an equity market environment.
This does happen. She could do that. But she is just so involved in the emotion and thrill of it all, that this idea probably never even occurred to her. And I don’t think she is going to have the desire to go research it herself, or even ask me. I thought about it because my mind is constantly playing out all of these scenarios about projects I can launch and that other people could do as well – for full time or part time.
Be smart with your trading. Know both what not to do and what TO DO, with the Order Flow Mastery Course.