The 4 Deadly Sins of Trading

Your Instincts Are a Problem

In August, I'm going to talk through what I consider to be the 4 Deadly Sins of Trading - Fear, Hope, Greed, and Pride.  

For the length of my trading career, several of my mentors have stressed to me that I need to remove all emotion from my trading.  So I started coming up with ways that would help me to approach life with an almost Mr. Spok-like attitude.  Unfortunately, I failed because I just wasn't able to tune out all of my emotions.

Scott O'Neil, who I admire greatly, has a pretty awesome series of videos on this topic.  Definitely worth checking out so I'll be embedding them in my posts through this month.  

He's one of the proponents of removing all emotion, which I don't 100% agree with but I still recognize that there is a ton of merit in what's he's saying.  However, I modified things to line up a bit closer with my own personality.  

My Alternative

I realized that there had to be a better way for me to do things.  A way where I could somehow use these potentially harmful emotions to my advantage!  I assumed this would be a risky adventure given that nobody else was talking about it, but I knew I had to pursue this for my own financial well being.

I also knew that my instincts and emotions existed within me for a reason.  It's because there's an evolutionary advantage to them!  Think about it, fear of risk is a useful tool for survival when you live in a dangerous world, full of animals that consider you to be a part of the food chain.  Our greed encouraged us to eat as much as we could in times of plenty which helped us survive through times of need.  Instincts helped keep humans alive and have been passed on to every one of us as a result.  

Interested In a Live Presentation On My Methods?

Email Address *

First Name

Last Name

The Technique

I decided to start treating my dealings with markets the same way a Cro-Magnon man would deal with a world full of saber tooth tigers.  I began to nurture my instincts to limit their negative impacts in my trades.  

Training myself to recognize when I'm feeling one of these emotions was the first step.  For example, when I recognize that I'm feeling afraid, I force myself to take a deep breath and step back.  I wait a few moments for the fear to subside, and with a calmer state of mind I turn my attention to charts and data!  

Now, some may say that what I'm doing is actually still eliminating my emotions from trading but I think my unique perspective here gels better with my over all approach to living life. Using my emotions as a trigger to action makes me feel more in control of my trading, and that's a must for me.  Incorporating instincts into my process may be one of the smartest things I've ever done!

Wrapping Up

Now that I've gone through a basic introduction to my approach, next week I'll go through the specific dangers of Fear and Hope in trading - and how you can turn both into an asset!

As always, feel free to reach out to me if I can be a resource in your trading education!

Happy Trading!

$DJX - Insights & Emotions

Your Emotions Can Be Useful

July provided a lot of opportunities for retail investors but talking to my readers and others in my circle, you'd be hard pressed to find much market optimism.  I'm not immune to the negative feelings but I try to use them as a trigger towards positive actions and when in doubt, I consult the chart!  I try to keep in mind that charts are there to tell me the story of all the human behavior behind the market. 

So, What's the Story?

• In July 2014, $SPY did -1.35% and this year it did +2.26%. Most of the gains this year occurred in the first two weeks of the month (+4.5%). We had a follow through day on July 17th but the rally fizzled soon after and the market gave back half of those gains! Thus, the popular opinion tells us that July was a bust!

• In July 2015 the $NASDAQ outperformed the $SPY by twice as much. The $QQQ index that I prefer to study was up by $4.56% this month. This was mostly lead by just a few stocks such as $GOOG, $GOOGL and $AMZN. However, it's important to note that it wasn't a broad rally and, most of those gains came as a results of earnings activity.

• The $DJX has been quite a disappointment for July as it was up a mere +0.46%.  The index is still trading below the 200 simple moving average (SMA).  The index is made of stocks that are multinationals and a reflection of our Industrial sector ($XLI), the Materials sector ($XLB) and the Energy sector ($XLE). It is also a reflection of a downturn in the world wide economies and a very strong dollar.

On that note, I've had some interesting conversations lately with Tyson Conrad, who has a background in recruiting electrical engineers for large scale construction projects.  With his work being on the front line of the construction industry, he's uniquely positioned to see how all of this this lackluster $DJX activity affects the industry.  

Interestingly enough, his business is booming because there's a rise in the need for automation and the deployment of cutting edge technology - which is what electrical engineers excel at!  Now, look at which sector is showing the most strength and think through things logically.  When any industry experiences a slow down, you can expect that there will be someone who benefits! 

Who Made My Watch List?

For access to my full watch list with side by side comparisons, you can subscribe to my weekly watch list and trade plan service.

Some of the items on my watch list are extended but don't be surprised if there's still some juice left in them. Now that earnings out of the way, they're a safer bet but as always, I will only take a very small position in them and I refuse to chase them if they pass their buy point.  Instead, I'll wait for them to retrace to the specific buy point enumerated in my trade plan:

$VRX
$CELG
$EW
$UHS

Other Opportunities

Over the past 3 weeks, I've been keeping tabs on the Consumer Discretionary ($XLY) as well as Consumer staples sector ($XLP).  Several stocks in each sector present opportunities for a low risk, short term option trade.  These stocks aren't technically on my watch list yet, but they've definitely appeared on my radar: 

$WBA
$CVS
$RAI
$MO
$DIS
$SBUX
$CMG
$NKE
$FFIV
$EBAY

Be careful this week and as always...Happy trading!

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!

$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!

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!

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!

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!