Morning Market Thoughts

Good morning. Three things to ponder:

Producer prices for December came in lower than expected, declining 0.1%. As a consequence, futures are up a bit this morning because a tame PPI (“Producer Price Index) decreases the likelihood that the FOMC will hike rates to tame inflation. When stuff doesn’t start costing more, there’s no need to raise interest rates.

Regarding the course I delivered to members last night, one of our members posted about it last evening, and I’m going to share my response:

“That’s really great to hear, shrholder. And don’t be embarrassed about never having tracked your trades. I wasn’t really tracking my trades for a long long time. As such, my results were very inconsistent. But once I started tracking them, my mistakes became glaringly obvious. They just jumped off the page at me. And if you do a “look back” at your trades over the past several months (beyond just the last 20), and then study the chart that was printed AFTER you closed the trade, you’ll be amazed at the number of times you can’t even justify WHY you sold when you sold. Seriously,…you’ll look at the subsequent price action and realize that you were too skittish and sold because a stock under institutional accumulation does what all stocks do — it goes up…and then comes down…goes up…and then comes down. You got shaken out on the “come down” part, and weren’t around for the next “goes up” part.

The best stocks resemble a staircase rather than Evil Knievel’s launching ramp. They move higher as they are accumulated –> They rest or pull back a bit as profit-takers close their trades…or those who bought at the last high sell to get their money back (“IWWMB” traders…”I Want My Money Back!”) –> And then the stock moves higher again as supply has been absorbed and new buyers (remember, it’s under institutional accumulation) have to pay up to get more stock.

If you happen to be one of those who takes profits after the first move higher, you’ve got a nice 5%-10% profit. Great! Seems like a pretty good trade. Been there; done that. But if you can be patient and have faith in what’s happening with the stock — looking at the big picture (daily and weekly charts) rather than the 15-minute chart (great for day trading…but for longer holding periods…not so much) — then you can hang through the 2% pullback and climb the staircase higher as the stock makes yet another 10%-20% advance. Think of it as an escalator rather than a staircase. Just stand there on the escalator, and let the power that runs the escalator take you higher. The electricity that powers the escalator is kind of like the institutions that buy the stock. Actually, it’s EXACTLY like the institutions that buy the stock. If you pull the plug, the escalator stops going up. If institutions stop buying and start selling, the stock stops going up…and perhaps even reverses. But if 30 obese people, each weighing 300 pounds, are on the escalator at the same time, the escalator slows a bit. Provided that the electricity hasn’t been shut off due to lack of payment, it the escalator keeps moving higher. But it just slows until all the big guys get off.

When you track your trades, you’ll see whether or not you’re hopping off the escalator just because a few big guys are weighing the escalator down. You’ll see whether you are actually trading right. That is, being patient and holding the stock as long as the trend is generally higher, accepting and embracing the fact that your stock will often pull back to a lower price than it was yesterday or last week. It’s ok. A couple of big guys carrying heavy packages just got on the escalator. They’ll get off soon enough. Be patient with them.

So it’s not enough to just go back and see your batting average and your average profit vs. average loss. That’s actually the easy (though tedious) part. The hard part is doing something about what you see. Can you make changes to improve your results?

In my view, Mark Minervini has written two of the best books on trading that I have ever read — and the bookshelves in my office and my home office are filled with them. And so is my Kindle and my iPad. Hundreds of them. But Mark is the first trader I’ve seen who lays all of this out. And much more than I have done in this course (which, as I’ve said, should be called “The Three Legged Stool of Risk Management.” If you just want to read a nice book on trading, then read one of John Murphy’s books; or Martin Pring’s books (all of which I really like because he has the same writing style as I do — though without the flippant comments). Those are good books on chart patterns and technical analysis. Alexander Elder has written well on the mental game of trading. But Mark’s work is the best work, by far, that I’ve ever stumbled upon. It’s also been the cause of several lost weekends and late nights. But if you are intent on being successful at trading — I mean, consistently successful to a point where your trading is a second (or first) income rather than just something that’s fun to do — then you’ve simply GOT to do the work. There’s no way around it.

So I hope my efforts in bringing these concepts to you are useful. But watching the course is just the start. It’s like giving you a bunch of iron, and all tools to build a bridge. But without the work, that bridge is never gonna get built. Instead, all that iron will just gather rust. And that’s a waste of time and money.

Again, glad that you see the light. Now…do the work and build that bridge to where you want to go.”


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