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RESISTANCE, DROP

  
  Education
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Resistance is a powerful word, but in the market it can mean the end of a long climb up the latter of a successful bullish run. Points of resistance aren’t necessarily concrete, think of them more as a tightened rubber band that if you push into it to hard, it can send you plummeting very quickly.

Resistance is what it implies, a possible push against current price action. There are two correct responses you can have at a resistance, turn back (with a proper candlestick confirmation), or wait to see if the resistance is overcome, You never want to go head on into resistance because chances are you will get your butt handed to you. The other thing you don’t want to do is automatically turn back without a little push. YOU DON’T ALWAYS WANT OR HAVE TO BE IN THE MARKET. There are times when you need to be on the sidelines in observation mode; at a point near resistance is one of those times. Trying to break resistance is like trying to run over a locomotive on a bicycle. You can’t do it!! Your best option at resistance is to rest to see either the strength or weakness of your price action. Whether price is successful at demolishing or chipping away resistance or does a turnabout, wait until it makes a concrete decision before following. NOTE: wherever price leads, follow until you get a signal that it is no longer safe to do so, or until you have had your fill of a nice fat profit.

Let other traders jump in front of the locomotive to slow it down; DON’T YOU DO IT! Save yourself and wait until it is safe. Resistance points can either be safety zones put in place to help you protect your profits or the force and authority to crush you if you try to cross the line. When you come to a resistance point it means STOP!!!!, DO NOT PROCEED WITH CAUTION it is a RED LIGHT, when it is green, proceed with caution because there are times when price will break resistance only to fall back limp under the weight of the break through triumph.

Probabilities vs. expectations

  
  Education
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I expect to wake up tomorrow morning and not die during the night.

I expect that I will be able to get out of bed and know how to walk to the kitchen.
I expect my car will start.
I expect the other person will stop at the red light.
I expect that I won’t get hit by lightning.
 
Seeing that expectations are what normal everyday life is founded on, is it natural to think that you can expect a stock to trade in a particular direction? Only if you want to become a loser.
The markets and stocks are not everyday life. They have the ability to do anything at any time. The only thing 100% certain is that they are 100% unpredictable.
If you have expectations, it means you have an emotional attachment or interest in an event outcome. Do you expect to make money, have a winning trade, make a right decision? When they happen are you giddy with excitement, gushing to all who will listen that you are so smart. What happens when you are wrong? How about wrong ten times in a row? If you live the highs you will be living the lows. Your expectations will destroy your confidence and thus your account. Your ego will take you back to childhood where you will throw tantrums and stomp your feet looking for a sympathetic ear. “The markets aren’t fair” you say. Well the markets don’t give a shit what your want or when you want it.
Now if instead you trade the probability of a outcome to an event, you can put a wall up between yourself as a person who is on autopilot accepting everyday expectations and you as a successful trader who is ruthless in the execution of your plan. Thinking, trusting and truly believing in probabilities will save the day for you. When you think that “based on my experience, seeing a very similiar situation before, odds are that the near future direction of this stock is this way. However since this event is unrelated in every way to my past memories, I must choose the point at which my decision will be proven wrong and set a protective stop here.”
When you think this way, it doesn’t matter whether you are right or wrong. You are simply carrying out your trading plan based on your experience/edge. Playing the averages. You don’t get hurt by losing trades. You don’t get happy over winning trades. Whatever happens, happens. Being cold and calculating brings you as a trader closer to the machines that are running the show these days. (more…)

When should traders be in or out of the market?

  
  Education
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There are times when traders should NOT be in the market. There are other times when the market is rocking and traders should get aggressive. How can you tell the difference? Here are 5 helpful tips.

1) Accumulation and Distribution Days: When should traders go to cash? Follow the big boys! The big institutions control the market, so pay attention to their actions by tracking accumulation anddistribution days. When institutional selling builds up over a short period of time (2-4 weeks) AND leading stocks start to break down, that is a great sign to start raising cash. Why? Because 4 out of 5 stocks move in the general direction of the market. I don’t care how good the company is, when the market’s in a downtrend, you don’t want to fight it.

2) Uptrends and Downtrends: Don’t get caught up with the terms Bull and Bear market. Just recognize if we are in an uptrend or a downtrend. For example, use the 50-day moving average on the NASDAQ Composite as a general indicator to be in or out of the market. Above the line usually means we’re in an uptrend and it’s a green light to be in stocks…below the line, downtrend and red light.

3) Scale In: When conditions start to improve, SLOWLY scale back in. There’s no reason to rush. Take a few positions and test the waters. If the rally is for real, there will be PLENTY OF TIME to make money. If you are wrong, at least you can get out quick with minimal damage and protect your portfolio. Think Defense First!

4) Buy the Strongest Earnings & Sales Growth: When markets are in a confirmed uptrend, what stocks should you buy? Be in the best! Don’t settle for low rate stocks. Look for companies that have strong earnings and sales growth. Why be in dead-money stocks with little growth potential? We’re in this to make money, right? So be in stocks that have a higher probability of moving up!

5) Fundamentals AND Technicals: Why does it only have to be one or the other? Why not USE BOTH! We want as many factors as possible in our favor when trading the market. Therefore, start with strong fundamental companies AND combine the proper technical timing to identify ideal entry points to effect your best risk vs reward trades. (more…)

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