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Sunday, February 08, 2004
Good evening friends,
Smart Money Win Again
A small pullback at the open on Friday, just to let the sheep sell (the crowd controls the open). Then the smart money stepped in and decided to take the market back up before it touched the big psychological 2000 number everyone was waiting for. Again, the average investor was left behind as the market had a powerful rally on Friday. We thought this might happen and mentioned this very point in a commentary last week. We didn't think 2000 would be touched before the rally began. The smart money is always one step ahead of the crowd and they got in while everyone else waited for a bounce off the 2000 level. The average investor did not realize that 2000 would never materialize until it was too late.
Small Caps a Step Behind
Even though we had a great bounce, I elected not to do any buying on Friday. I had emails asking me why I didn't buy which is a good question and I'll answer it here. The main reason I didn't buy on Friday was because, for the most part, the small caps did not participate in the rally. This sometimes happens but it is nothing to worry about yet. Also, Friday's are usually a day that I like to save my available cash. I do this because I may be anticipating a number of good new stocks on the weekend scans. I don't want to be over extended and not have any available cash to buy good stocks that I may find in the weekend scans. I am 50% cash right now so I will be able to buy plenty of new stocks this week if need be. Friday's action was very good for some damaged charts and should go a long way in repairing them. The markets closed on the highs of the day and that should be good for Monday's trading.
“Live Long and Prosper”
For those of you struggling with the emotional aspect of trading, Joe and Drew have said it best in a post on Friday; “leave emotion out of your trades”. If you trade with your emotions, you are setting yourself up to lose; scared money never wins in the stock market. If you are scared, you'll always sell at the worst possible time. When I trade I never ever show emotion - I don't pound my desk when I trade for a loss, I don't shout and swear at my screen or the TV, I don't blame others when a trade goes bad. I don't jump for joy when I make 200% on a trade in 2 weeks or 50% in 2 days; I don't dance around the house when I make a big profit. I simply push the sell button and immediately start looking for my next trade. My wife can never tell whether I had a good or bad day in the market; I'm the same each day win or lose. If you have ever seen the original Star trek series, imagine Mr. Spock trading stocks, that is me folks. There is absolutely no emotion from me when I am looking at my screen each day. I concentrate so much on my screens; sometimes I won't even know if somebody else has entered the room. This concentration and focus takes all the emotion out of trading for me. It's strictly business and you can not have emotional ties. It's like disciplining a subordinate on the job. They may be a great person, but when they cross the line you must take action and leave your emotions out of the situation. For you, it's nothing personal, it's just business but the subordinate views it differently.
Cat/Dog Theory
Take this little test to see if you are an emotional trader or not. Compare yourself to a pet; I call this my “Cat/Dog theory”. Dogs show a lot of emotion, their tongues hang out, they wag their tails, they jump on you, and they lick your face when you are good to them. They growl when they are mad. You know when a dog is happy or mad or even sad. Contrast this to a cat. I have 2 cats and to this day, I can't tell whether or not they appreciate my love because cats are incapable of showing emotion. In the case of pets, emotion is good, I would love for my cats to act like dogs so I know how they feel. But in trading, it's better to be a cat than a dog. If pets could trade stocks; the cat would be the better trader. The cat is the smart money and the dog is the happy go lucky “dumboberry”. Cats are more agile; they can maneuver better than dogs. The dog (“dumboberry”) will chase the cat (“smart money”), but the dog is always two steps behind and can never catch the cat. Dogs are emotional; Dogs follow the crowd like little puppies looking for direction. Dogs chase sticks (in our case, stocks) over and over again making the same mistakes. The dog will chase the stick until he can't stand up anymore (chase and trade stocks until there is no money left). The cat sits high above in the tree and watches the dog make the same mistake over and over. Because the dog can't change his ways, Dogs get stuck with Dogs in their portfolio.
Are you a dog or a cat when you trade? Emotion is the single most destructive reason people fail to trade well. This cat/dog analogy is kind of off the wall but if you really sit and think about it, it really does relate. Every day is a new day when you trade, a new opportunity to change your old habits. You've taken the first step by being here with us and wanting to learn. Now it's time to take it to the next level, you need to lose the emotion and trade with confidence, start today, start right now, start with your next trade.
For the active OTC BB player, SWYC and VLDI are looking good.
As always, thank-you for your support past, present and future! Have a great night everyone; we'll see you all Monday evening.
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