Thursday, July 30, 2015

Get Back To Basics




Last week I offered up some actionable tips to help my readers get back on the path to better trading.  This week I'm going go through 2 specific scenarios that a lot of retail investors struggle with.




Planning a Trade


Everyone knows that they should plan out their trades in advance but time and time again I hear horror stories about naked puts or unreasonable 30% profit targets.  The problem with trade planning is that it can't be done in a vacuum - you've got to take everything into account and think through all of the potential outcomes.  

The easiest way to form the habit is to force yourself to create a trade plan for every stock on your watch list.  Another benefit with this approach is that it encourages you to slim down your watch list to only the best possible candidates.  You can also increase your chance for success success by planning for all three potential outcomes - profit, loss, AND time.

Every trade plan needs to include:

  • Specific entry conditions - I like to use a range for my buy point
  • An exit condition for profit, for loss, and for timing - I usually give trades 35-40 sessions to avoid the impact of earnings reports
  • Relevant market info - I always include market conditions, document the leading sector, and include a hyperlink right to the most recent chart action


I know that sounds like a lot of work, and it is.  I offer a Watch List & Trade Plan service for people that just don't have the cycles to sit down and hammer through this every weekend.


Knowing When To Exit



The other big problem that plagues retail investors is knowing when ti exit a position.  Most retail traders that I know either exit early because of fear, exit late because of greed, or refuse to exit at all because of hope.

This is a problem that can easily be fixed with just a bit of discipline.  If you recognize that you struggle with exiting, then you need to commit to exiting at least 1 position every month.  You don't want to exit arbitrarily, however, so make sure that you're getting out because:

  • You hit your profit target from your trade plan
  • You were stopped out according to your trade plan
  • You hit the session limit from your trade plan

One thing to note, it's perfectly OK to re-enter a position that you've exited but only if:
  1. It survives your watch list funnel
  2. You've created a fresh trade plan for it!
A little discipline will take you a long way with exits so make sure that you stick to your guns.

What's Next?


In August I'm going to explore how your instincts can get in the way when you're a retail investor.  We'll look at how you can use greed, fear, and hope, to your advantage!  I'll also show you some interesting ways to balance your behavior with the math on every trade.

Happy Trading!


Monday, July 27, 2015

$BIIB Dropped 22%! Here's Why I Don't Trade Earnings

Being In Cash Makes Sense


Last week I couldn't find a single stock for my watch list!  There were a few candidates I had my eye on but ultimately. earnings got in the way.  Earnings is just one of the variables included in my funnel method for selecting stocks.  


Some people live and die by earnings but in my experience, even good stocks with strong fundamentals can plummet as a result of earnings so I just steer clear until the dust has settled.  Case in point - $CNC, $ILMN, and $UTHR  dropped by as much as -6% to -8% while $BIIB dropped -22% overnight! 



There's a Storm Brewing



With the price of commodities (oil, silver, gold, copper etc) falling as of Sept of 2014, I'm concerned that the global lack of demand is hitting again.  China has lowered irs consumption of certain commodities and that directly impacts Canada, who just happens to be one of our strongest trading partners in the world.  Facing a decline in demand for their resources, Canada's currency is down by 30% from an all time high 4 years ago.


Looking closer to home, I also see that the worst sectors in US are Materials ($XLB), Industrials ($XLI) and Energy ($XLE).  Adding to that, all 3 sectors are getting down to their all time lows. Companies in these sectors are multinationals and with a strong dollar, it doesn't bode well for companies that are going to be reporting earnings in the next two weeks. 



Current Market Outlook




We had a market "Follow Through" day only 5 sessions ago when the Greeks finally agreed to bailout terms with the European Central Bank.  When I look at the major indices ($SPY,$DJX) I see similarities to the beginning of March 2015 when the market rolled over for a -4% loss within 2 weeks.  July of 2014 was pretty brutal too and with just a handful of stocks driving the market right now, there's a lot of risk on the table.




What Survived My Funnel?



The health care sector is still strong but some stocks in this sector are showing signs that institutions have maxed out.  Things are a bit better this week but it's still slim pickings:


$AMBA

$VRX
$CELG


This is no time for heroics.  Most of the growth stocks in health care have already made their gains over the past few years. I will definitely wait for at two days before I make a major commitment to trading any stocks. 


It's always better to allow stocks to retrace and enter when they're closer to their buy point.  I'm also looking at ways to reduce my risk such as taking a small position and utilizing conservative option trades


Happy trading!







Wednesday, July 22, 2015

Your Path To #Trading Better

In a post earlier this month, I laid out some action oriented tips that every retail investor can use to start on the right path with setting benchmarks and managing time more efficiently.

In today's post, I'm going to continue with that theme by showing you a few more ways to build out your pathway to success!




Step 1: Create an Honest Calendar


Before you can do anything else, you need to get a grasp on where you currently spend your time.  Try to identify anything in your routine that can be done differently - or eliminated altogether!

Not sure where to start?  Try this:

  1. Open up your favorite Calendar App. I like both iCal and Google Calendar as they offer synced notifications on both my phone and my computer - plus they're free!
  2. Start with the low hanging fruit.  Do you wake up at the same time every day?  Do you always leave to drop your kids off at school before 8 AM?  Get these items on your calendar repeating events.
  3. Include the weekends!  As I've mentioned in previous posts, I manage to squeeze in some of my best market analysis on Saturday and Sunday! 
  4. Get Granular.  If you spend more than 15 minutes doing something, you need add it to your calendar.
  5. If you spend a lot of time reading and researching, consider doing that early or late in the day or when things tend to be more calm for you.


Now step back and examine what's staring you in the face.  
  • Are you spending too much time on certain activities?  
  • Do you have enough time allocated for skill sharpening?  
  • How many hours per week are you orienting to your research and trade planning?  
  • Remember the goals you've set for yourself - are you spending time wisely enough to achieve them?

Step 2: Give Yourself 3 Weeks


So now that you've got a shiny new vision of your ideal week - it's time to start living out your new routine.  Your goal should be to enjoy the benefits of your new time management based approach but for that to work, you've got to form a true habit.

Make sure that you give yourself a minimum of 3 weeks with this new routine so that your brain can actually change over and create the habit for you.  Once your 3 weeks is up, go back and look at how well you've done and document what you consider your strengths and weaknesses.

I can show you ways to manage your time that help you get the most from your strengths while limiting the impact of your weak points. Just click here to sign up a free consultation!

Step 3: Get More From Your Strengths


If you've ever had to manage people then you know the secret to success is to get the most out of your team.  In my opinion, the best way to do this is to create an environment that caters to their strong points and then allow them to them take full advantage of their talents.

Treat your trading routine the same way but acknowledge that the various parts of you is what forms the team in this case.  Let's say that you're a rock star at timing a breakout just right - make sure your routine allows you to benefit from that!

Step 4: Address Your Weaknesses


This might seem obvious after step 3 but we can't overlook it.  As a retail investor, you don't have other people on your team calling you out for your mistakes or pointing out the weaknesses in your game.  It's up to you to pin point any dents in your armor, but don't stop there.  

If you've located a weakness, you need to ask yourself how severely it's impacting your success.  If it turns out to be a major road block then you need to: 

  • Figure out a way to fix it
  • Allocate time in your daily routine for additional skill sharpening
  • Seek out friends or colleagues who are strong in your weak areas and see if they're willing to offer you some guidance
  • Pay it forward, offer your assistance to those you can help
Hopefully this helps you build an approach that gets you to your goals.  I'm always happy to serve as a resource too.  

I can show you ways to manage your time that help you get the most from your strengths while limiting the impact of your weak points. Just click here to sign up a free consultation!


Happy Trading!


Monday, July 20, 2015

How I Traded Stress Free On $FB


How I Stay Stress Free


Unlike a lot of traders I know - I don't stay glued to my computer or phone.  I don't want to spend my valuable time sitting around watching every tick on a chart or second guessing decisions on my trades.  Most important of all, I want to give myself the ability to enjoy time with my family, who also live busy lives!

How I Traded $FB


On July 14th, I placed a contingent order on $FB through an option trade.  In the last week of July I went with a $87.50 / $90.00 put credit spread for 85 cents -  with a setting for the trade to expire on July 24. Other traders may approach this differently but I never place a naked put on my credit trades.  There's simply too much risk on naked puts for my comfort level.

I had just gotten back from my European vacation so I was in catch up mode and I had an evening IBD® Meetup to prepare for as well.  I simply didn't have the time to sit around watching and making tweaks so I trusted to my pre-planning.  

Here's an example of how you can use a call and a put to protect a trade on $FB as well:


Call & Put for $FB from Amin Hemani on Vimeo.



The Result?


My trade was filled that afternoon and just 3 days later, my personal life took precedent again.  Last Friday, I carved out some time to attend my 5 year old granddaughters performance as the Wicked Witch of the West in her summer camp play.  The performance wrapped up by 3.30 pm and it was the highlight of my day!  What's more, my credit spread trade on $FB closed out according to my contingent order for profit and it all happened without any interference from me!

My Market Outlook


It has been a pretty hectic weekend for me as I've tried to get back into my research routine. After being away for 3 weeks, my batteries are re-charged and I've got a fresh approach and outlook which is a good thing.

I noticed that a lot of banks reported earnings last week and showed some strength.  The retail sector is also in the lime light this week. Financial and Consumer Discretionary ETF's are up by 4% in the last two weeks as well. The technology sector is almost up by 8% in the same period mainly because of a dramatic gap up moves on $GOOGL, $GOOG, $CELG and $FB.

The IBD® market pulse indicates that we are in a confirmed uptrend thanks to a powerful rally last week. Our distribution count has fallen off to just 9 between the $SPY and $NASDAQ  so market health has certainly improved but I'm not convinced that we are out of the woods yet.

What I'm Watching


The next two weeks put us right in the midst of earnings season and some stocks that would usually make it through my funnel are getting weeded out as a result.  Variables like earnings and government involvement introduce a level of risk I can't control so I shy away from taking positions when things like that are hanging around.  

Here are a few stocks that I will be watching once earnings are out of the way:

$VRX
$CNC
$CELG
$UTHR
$FB
$GILD
$UA

Happy trading!


Wednesday, July 15, 2015

The Pitfalls of Proof By Example

During my IBD® Meetup last evening we broached the subject of proof by example.  For those of you who don't know what that is, have a quick look here.

Proof by example can get you into trouble in a lot of different ways but things escalate to a new level when it's involved in your trading process.  There's a way to make it work for you, though, so in today's post we'll examine some negative aspects while focusing on actionable tips to get around them.


The Pitfalls of Proof By Example


Let's start with a quick example of a scenario that could get you into trouble.  If you live in the U.S. you have noticed a steady decline in the presence of cigarettes in our culture:   

  • There have been class action law suits against the tobacco companies  
  • Smoking has been outlawed in public in places like New York and California
  • Many restaurants no longer offer a smoking section
  • Taxes on cigarettes are higher than ever before
  • Teen smoking is on the decline
  • We don't see cigarettes on TV or in movies like we used to.  
  • There are fewer billboards and magazine ad's
  • We see commercials for products like Nicorette, e-Cigarette, and Chantix - all designed to undermine the tobacco industry

Sitting around chatting with your friends, someone in your group may cite these examples as proof that tobacco companies must be a bad investment.  After all, look at all of these negative things impacting their businesses!  They will continue to dig up facts and figures that illustrate their point of view on the matter.

However, they'd be wrong to do so.  The truth is that tobacco companies are thriving - just not in the United States!  They've adapted their business model and taken advantage of international markets where these restrictions and cultural changes haven't taken root yet.  Asia, Africa, and Europe still consume tobacco at an astonishing rate which is easy to overlook when you're stuck in that proof by example mindset.



Breaking The Cycle



Making generalizations is something we all do.  It's hard wired into our DNA and is partly the reason for our survival as a species.  However, when your financial future is involved, it's critical to find ways to make it work for you.

If you have an opinion or a theory on something, that's fine - but you had better test it out before you tie a theory to your finances.  We live in the ultimate information age, with access to every side of every argument at our very fingertips, so one thing that I like to do is, seek out contrarian points of view for my assumptions.  

Challenge yourself to no just focus on facts that only support your opinion.  Review the facts that run counter to your opinion and if your views can withstand that level scrutiny, you'll have the peace of mind required to engage in data driven trading versus emotional trading,


Not All Generalizations Are Bad


Generalizations can give us a feeling of comfort and it's actually OK to stick to your comfort zone.  For example, I have a negative opinion on penny stocks.  I'm sure there are still some opportunities when trading penny stocks but my own generalizations have kept me out of the mix there.

My comfort zone is growth stocks but I like to give myself some mobility within that comfort zone too.  I've learned that I'm comfortable expanding my approach to focus on growth wherever it exists.  Even if it's not actually a stock but, instead, an ETF, or a foreign index. 


Are You In The Tampa Bay Area?


My son and I are in the early stages of planning a live 2 hour presentation of our funnel method for selecting stocks along with a crash course on how we like to incorporate options into the mix.  We are looking to do this on a Saturday some time in August

We need at least 12 participants at $50 each to cover our cost for the venue and refreshments etc.  If you would be interested in attending, please let us know by clicking here. We will firm up the plans and the date once we can confirm the interest level.  If you have questions, you can always reach out to me directly at investorspotlight@gmail.com

Happy Trading!





  




Monday, July 13, 2015

Back From Vacation!

I Stayed in Cash While I was Gone


For the past 3 weeks I've been vacationing in Europe and before I left, I decided to cut myself off from the market. In my opinion, any trader in the same scenario should do the same because it forces you to liquidate your unprotected positions and your losers. 

When talking with others on the cruise, they asked how I keep tabs on my positions because I wasn't glued to my phone or computer. They were surprised when I mentioned that I was mostly in cash.  All of my positions were set up with contingent orders for targeted profit, stop loss and exits based on timing as well (if things go sideways). 

Several people mentioned that they feel uncomfortable if their money isn't in a position that is working for them.  I just smiled, it's a tough concept to explain but some times having cash is the position that works best for you.

Market Bloodbath


June was pretty brutal!  The $SPY fell by -2.5% when last year it did +1.58%. Traditionally $SPY does only +0.02% looking at historical records over the past 50 years. My market analysis on June 20th showed 12 distribution days which was pretty alarming! I could not even find a single growth stock for my watch list. 

Current Market Conditions


Currently, IBD pulse indicates "Market under Pressure" with 9 distribution days between $SPY and $NASDAQ. There are 2 additional stall days according to IBD as well.  I consider stall days to be distribution days with how the market has behaved in 2015.  All of these distribution days have piled up in less than a month so I'm not very confident on the trading front right now..

While in Europe, I noticed that CNBC and Bloomberg had a lot of international market coverage.  They covered (in depth) the markets of; Japan, China, Russia,  Australia, Great Britain, and even the individual markets within Europe! In the U.S. we simply don't get that depth and perspective which can lead to tunnel vision on our part. 

If something happens in the world, it directly impacts our markets as well. Currently Japan is down by 7%, Europe down by 5%, China down by 35% - and possibly another 5% downtrend projected in the coming weeks. We are facing another 1 million barrels of oil coming into the market from Iranian oil fields in the near future too. There is an over supply of all commodities because of the downtrending world markets.

What I'm Watching


Over the next 3 weeks we will be chewing on earnings reports from the financial and health care sector. I am avoiding both sectors for now because earnings are a variable that I can't control.  Most of the health care growth stocks with good fundamentals are showing late stage bases which indicates that institutions are maxed out here.  That's another no-no in my opinion but there are a number of other risk bearing factors that I eliminate with my funnel process too. 

I'm keeping very close tabs on the Consumer Discretionary ($XLY) sector because this sector has less exposure to Europe, China and Japan. For now I'll stay on the sidelines for any stock purchases and, instead, just utilize some option strategies to build up my portfolio.

Happy trading!






Wednesday, July 8, 2015

Want To Be a Millionaire? Start Using Benchmarks!

When I first started to mentor a few years ago, I realized that I was spending a lot of time teaching people the technical aspects of trading.  However, I quickly realized that all of the technical knowledge in the world wouldn't lead to financial success without a goal oriented trading approach underneath it all.  

In July, I'm going to talk a lot about the importance of effective time management and goal oriented benchmarks.  In this post, I'll highlight what I see as the first steps and give you some actionable tips to help get you started down the right path!

Start Using Benchmarks


The easiest way to get my students pointed in the right direction was to get them thinking about their long term goals.  In one case, I was working with someone who wanted to grow his $200K portfolio into a $1M portfolio within 10 years so that he could retire and start enjoying the fruits of his labor.  

When you drill further into that, finding reasonable ways to make $800K in just 10 years can be pretty daunting.  My initial fear was that he would get caught up taking positions with a high risk/reward ratio or that he would convince himself that his goals were not achievable.  

As we continued to talk through it, I could tell that he was discouraged and was questioning if he should even bother trying.  If nothing else, I wanted to keep him from making these two big mistakes so we started by breaking his $800K goal into more manageable chunks.  

How We Solved His Problem


I let him keep that $800K number at the back of his mind but I really wanted him to focus his efforts on what he could achieve by December 31st.  We combed through his portfolio and had an honest discussion about his risk tolerance.  In the end, we came up with a plan designed to grow his portfolio by $65K before December 31st and, voila, we had our first benchmark in place!

We continued to break things down into quarterly and monthly benchmarks to keep him focused on what was directly ahead.  I wanted him focused on what was right in front of him versus that big number looming far off in the distance.

I'm happy to help you to pin point your goals and get your own benchmarks in place.  Just click here to sign up a free consultation!  


Time Management


How many times has your boss given you a project along with a budget and a deadline to go with it?  Your first step is to craft a plan that work backs from that deadline, right?  Then, you work out how much time each task will take, and allocate budget accordingly.  Treat your trades no differently and you're well on your way to making your first million.

There's no doubt that you will run into snags and set backs but stay goal oriented with every hour of your time.  One thing that helps is to measure your progress towards your benchmarks.  Also, when you run into trouble, figure out the underlying reason and come up with a solution.  Make sure that you pivot quickly to avoid spinning your wheels.  Maybe even consider tracking costs in a spreadsheet, just like you would for that work project. 

Theory Only Goes So Far


I also want to give you something actionable that you can use to start better managing your time right away.  For starters, set aside 30 minutes with every trade to plan for a profit exit, a loss exit, and a timing exit.

Not sure how to plan those exits with only 30 minutes?  Begin with these 9 Simple Steps:
  1. Review the most recent chart for buying signals - 10 minutes
  2. Only use data from the past 30 days in your decision making process 
  3. Determine the Ideal Buy Point - 5 minutes
  4. Annotate your charts with an eye on momentum. Measure the historical performance of the stock - 5 minutes
  5. Focus on the 8 day EMA and examine volume - 5 minutes
  6. Take a snapshot of Market Pulse on the day you place your trade.  Keep this handy for your post mortem with this trade - 5 minutes
  7. Act Immediately - Don’t spend additional time 2nd guessing the data 
  8. Only trade during uptrends. When market conditions aren’t ideal, switch your focus to updating your watch list and spend less time trade planning
  9. Once you take a position, immediately shift your attention to looking for the next opportunity. This will get you out of the habit of throwing more time at your existing position. 
Time yourself and work hard at getting it done in that 30 minutes time frame.  It may take you longer at first but don't let that dissuade you, keep at it!

I can show you ways to manage your time that help you get the most from your strengths while limiting the impact of your weak points.  
Just click here to sign up a free consultation!   


Happy Trading!

Wednesday, July 1, 2015

Trading Style: The Results Are in!

Know Your Trading Style


We've been conducting a survey on trading styles over the past few weeks and the results are in!  We collected dozens of responses between my Twitter followers, Blog subscribers, Meetup group members, as well as friends & family.  Read on for insights and tips based on the data we've collected!

Your Mentor


Our 1st question asked respondents to select their ideal trading mentor.  In a previous post I highlighted the key traits of Tom Sosnoff, Jim Cramer, and Scott O'neil who just so happened to be the choices on our survey.  So what's the verdict? Over half of the audience selected Scott O'Neil.  This is a pretty good sign that I've got a lot of relay racers following me! 

Activity During Market Hours


When are you most active, during market hours or after markets close?  According to the survey results, people are overwhelmingly active during market hours.  This one actually concerns me a bit because I'm not convinced this is an effective use of time unless you're a day trader.  

Personally, I don't spend much time monitoring positions during market hours because I pre-plan all of my exits.  In my opinion, it's only worth spending time to monitor a position if there's some action you can take as a result.  Have a look at my week, I rarely do anything investment related during market hours.

Impulsive, Patient, or Analytical?


80% of our responses came back as patient or analytical which is great when you're preparing to trade.  Allocating time to research is critical if you want to make money as an investor.  It's important to make sure that your trading process allows you to take full advantage of your successful characteristics.  

ROI Expectation


Question 4 had to do expected ROI.  About two thirds said they expect results the same quarter they place the trade but about 20% identified as day traders by answering "same day".  

No matter what your expectations may be, make sure that the stocks you invest in are oriented to those expectations.  For example, if you're a growth stock investor, spend your time identifying stocks that are poised to break out in the next 6 to 8 weeks.  If you're a day trader, wake up early and be prepared to do your damage in the first hour of trading.

Reaction Test


Throwing out a few common investor phrases, we rated people's excitement level to each.  About 3/4's of respondents showed indifference to the phrase "uncertainty is my best friend".  I find that a little surprising given that a good portion of my followers are day traders.  This response tells me that my audience may not have fully bought in to the day trading lifestyle.

Fundamentals, Candlesticks, Momentum


What's most important to you?  Momentum is the big winner among our respondents which is good to see.  As the following graph demonstrates, CAN SLIM stocks routinely outperform the field and momentum is usually one of the key underpinnings of a solid CAN SLIM stock!

Risk Management


When it comes to managing risk on a trade, diligent use of stops got over 68% of the results.  That's really a great first step to limiting risk but I'd like to see more people taking the next step by automating their profit exits and timing exits too.  Keep in mind that there are two types of risks, those you can control, and those you can't control.  Using stops allows you to mitigate a risk that's out of your control but if you leave your profit or timing exit up for debate then you're allowing emotions to get involved in your trades.  Do yourself a favor and place a contingent order for profit, loss, and timing every time you place a trade.

How Patient Are You?  


Almost 74% of respondents showed patience.  This is another way to get your emotions out of the game.  The more patient you are, the less likely you are to react to a sudden emotion tied to your trades.  Keep the math in your favor and you're more likely to see success.  Follow the lead of the Tampa Bay Rays and other money ball teams to keep things as favorable as possible for every dollar you're spending.

Keep your eyes peeled during July, I'll have a series of posts on time management and setting benchmarks for investment goals.

Happy trading!  

DISCLAIMER



Do not take a position unless you are prepared to sustain a TOTAL LOSS. Your loss could include the money you invested as well as commissions and transaction charges.


The Information I provide is for education and informational purposes only. The Information provided is not intended to be and does not constitute financial advice, investment advice, trading advice or any other advice. The Information provided is general in nature and is not specific to you or anyone else.


YOU SHOULD NOT MAKE ANY DECISION, FINANCIAL, INVESTMENTS, TRADING OR OTHERWISE, BASED ON ANY OF THE INFORMATION PRESENTED WITHOUT UNDERTAKING INDEPENDENT DUE DILIGENCE AND CONSULTATION WITH A LICENSED PROFESSIONAL. You understand that you are using this Information AT YOUR OWN RISK.