Newsletter

March 24, 2007

Asking Yourself Questions

Market & Sector Review
Would You Take this Bet?

Largest Changes In Raw Numbers (21 Days)

This Week's Economic Reports

Asking Yourself Questions

It is said that somewhere in that super-computer we call our mind; everything we have heard, seen, felt, thought, touched, and tasted is retained. When we ask ourselves questions, we direct our subconscious mind to search that vast database, attempting to find a solution to a genuine problem, instead of trying to accept self-imposed limitations. Often, the answers are right there, all you have to do is ask! But the way you ask will be telling of the results. You must ask the question as a positive, genuinely and sincerely, while fully expecting to get an answer.

Be very aware of how you speak to yourself. Learn to change recriminating and reproachful conversations with yourself into questions that direct your focus towards positive change. Beware of questions like "How can I be so stupid? Why is the world so unfair? Why can't I be rich, too? How can anyone treat me so badly?" If you ask questions in this manner your subconscious may well provide answers that have nothing to do with reality, like "Because you are undeserving. Because you were born to lose. Because you are ignorant, worthless, and undeserving."

If the questions are loaded, they imply acceptance of a negative belief that needs to be challenged, not reinforced. Questions are so useful in changing the direction of your focus and they are also an essential element of evaluation, and evaluation is the way to get to the root of limiting values and associations that hold you back from achievement.

If you are aware of how you talk to yourself, what you ask yourself, and what you demand of yourself, you can shift the focus of your mind away from negative associations and toward positive associations simply by consciously changing the tone and focus of the statements and questions you ask yourself.
Market & Sector Review
Would You Take this Bet?

One of the new features of the members' area I call "Trading Notes" which is updated at least twice a week if not more often. Recently I outlined a strategy I was looking to implement and a trade that resulted from that strategy. A result of the notes I received a few emails with, what I thought, was excellent if not an outstanding series of questions. Not that any strategy I personally employ is any better or worse than anyone else's, it's not, it is however what works for me and my objectives and personality. The purpose is simply; if I can teach what works for me maybe something will rub off, a little piece, or perhaps the thought process, anything involved. Perhaps it will lead to someone else having a nice profitable trade sometime in the future.

The purpose of this week's newsletter is not to reiterate that strategy or to go over that trade. Our Supporters already have all that. One question that was asked however was answered personally and not to the group and I thought it might make for an interesting newsletter this week. I think the individual who asked this question is a much better trader than most and better than he gives himself credit for. In the strategy outlined I was a buyer into a sharp downward move, and the question was simply "how can you bring yourself to do that, how do you overcome the emotion". What a great question don't you think!

The only analogy I could come up with at the time was this; If we ran into each other and I said to you, take a quarter out of your pocket and flip it. If it's a head I'll give you a dollar, but if it's a tail, I get to keep the quarter. How many of you would take that bet? Don't send an email; I know the answer. It occurred to me to do a little survey amongst friends and acquaintances I've run into over the course of a few days. The answer; most, even those I've found to be risk averse in the past. Before you read on, can you figure out why even a risk averse person would take that bet?

As an interesting aside this little survey cost me in the neighborhood of $10 (grin), dollars forked over minus quarters collected. Interestingly carrying my little experiment further, win or lose, I asked the other party whether they wanted to do it again? I found it interesting that the winners, who are in my opinion, risk averse, declined a second toss. The speculators and gamblers would have never stopped the game; they knew the odds were in their favor. In fact the odds are so much in their favor, the longer we play the more they will make.

The next step was to question the "risk averse" as to why they took the bet. Have you guessed the answer yet? It's only a quarter!

What if during uncertain times, such as the last few weeks, when you suspected something, you applied this little bet to your strategy? Suppose I said to you on a sharp down day, go ahead and buy, it's only a quarter. I'm nuts right! Perhaps not, let's look.

It really does not matter what this chart is, it's just a chart.

No matter your reasons you feel this is still in a bull move, it's only a correction and you'd like to buy at the most advantageous prices. No one buys the bottom nor do they sell the top. So what we will do is buy in stages, first in Buy Area #1, and if it continues lower the second buy will be in Buy Area #2. The risk is defined in red. Now let's look at some numbers and see what's happening to your portfolio.
  • Portfolio size = $100 currently all cash.
  • Total commitment (15%) to trade = $15 in two $7.50 stages.
  • Risk to portfolio = $15 (total portfolio commitment, no leverage) x 10% market value risk = $1.50.
  • That is a $1.50 loss on a portfolio of $100 or 1.5%. In essence it’s only a quarter!
  • Let’s now suppose buy area #1 = $20 per share and with a 7.5% commitment you can buy 100 shares.
  • Now let’s suppose buy area #2 = $18 per share and you buy another 100 shares. I know this skews things just a bit, but I’m trying to keep it simple.
  • Your average cost is $19. Our risk: 10% below 19, stop = 17.1.
  • If we lose, the loss on trade = $1.9 x 200 shares is $380.
  • A $380 loss on an investment of $3,800 is equal to 10% of your investment. However, if this 3,800 dollar commitment is but 15% of your total available trading capital, the loss is $380 on an account size of $25,333, now your loss is but 1.5% of your account. In essence it’s only a quarter!
But what if we win! Isn't that what trading is all about, winning without risking the farm?

Although I didn't ask, I'm sure not one of the people who lost their quarter to me on the flip, lost a moments sleep that night. The speculators and gamblers in the group dreamed of how to get me to play more. If you have what you believe to be good reason to make a move, this is how you can step up to the plate and not lose a moments sleep.

So would you take this bet? Would you be afraid to speculate? It's only a quarter!!
Largest Changes In Raw Numbers (21 Days)

[ Reserved for supporting members, now posted in members area ]
This Week's Economic Reports

Have A Great Week!

Bill

Disclaimer: Trading in securities, of any type, may not be suitable for all individuals. The contents of this newsletter are not a solicitation to buy or sell securities. The opinions expressed are solely that of the author. You must do your own research, contact your own financial advisor for suitability of any investments. Data gathered is from sources believed to be reliable, but NO guarantee as to their accuracy is made.