Become Disconnected Market & Sector Review
This Week's Economic Reports
Become Disconnected
When your self-esteem is not on the line, odds are you are trading objectively. All that is on the line then is mere money. There is an old cliché that states "Don't let your net worth define your self worth." This is not to say that making money is not important but it must be put in its proper perspective. Your overall trading over time is not dependent upon your next trade alone. The fact that your last trade was very profitable does not in and of itself make you a genius, therefore the converse becomes true, if your last trade was a loss or even part of a series of losses, it does not make you dumb or a loser. To the extent that you can trade with a logical and unemotional mindset the more effortlessly and profitably you will trade, most of the time.
This is much easier said than done. Although you will find performance is best when the outcome truly does not matter, it is very difficult to set up such circumstances. Outcomes often do indeed matter and disconnecting yourself from trading outcomes is emotionally difficult. In several research studies, it has been demonstrated that performance is hampered when outcomes are tied to your sense of self, or your ability to satisfy basic psychological or emotional needs. For example, when the outcome of a trade impacts your sense of security or identity, the pressure is on, and it will be hard to perform under the pressure. Relieving the pressure will improve your ability to perform.
The ideal situation, for example, is a multi-millionaire who can afford to make several losing trades and lose $5,000 a day with relatively few scars. Most of us, however, are not that fortunate. Perhaps the next best scenario is the trader who has a relatively small trading account and uses the profits from it to pay monthly leisure expenses, such as gourmet dinners or extra luxury items. If the losses really don't matter, the pressure will be lessened. Most traders however are not in one of those positions.
When traders become interested in trading for a living, that's when trading becomes really difficult. Be it the lone trader trying to support a family or the professional hedge fund manager trading clients' money. The outcomes of trades do matter. If too much money is lost, you do not survive economically. The psychological impact can be substantial. Your identity is usually closely linked to being a good provider, a successful member of society. When you lose a lot of money, your sense of self and self-esteem is diminished. In the back of your mind, you always know that should losses mount too drastically, you can actually be harmed financially and psychologically.
So how do you disconnect yourself from trading outcomes? Preventative measures can be taken. First, one can manage risk. If you know that it is unlikely that the outcome of a series of losing trades can hurt you, you'll feel more at ease and be able to remain calm and objective. Second, you must have a sense of self that is defined in many different ways. For example, don't just define yourself as "a trader." View yourself from multiple perspectives: a good friend, a loving spouse, a caring parent, and an upstanding citizen. Multiple views of oneself will lessen the importance of maintaining the view of oneself as "the winning trader," and will ease some of the psychological pressure. The more you can disconnect your trading performance from your sense of self, the more you can trade logically, effortlessly, and profitably.
Market & Sector Review
Had I been able to write a newsletter last week, I know exactly what I would have stated, and right off the bat, at that. This past week the stock market had so many obvious reasons to sell off and rather dramatically so, an inordinate amount of bad news hitting, beginning with a category 5 hurricane hitting a major U.S. port. I wonder how many sat back and asked them selves this simple question; why didn't the market sell off in the face of all this bad news? To quote the inimitable Joe Granville "If it's obvious, it's obviously wrong!"
First we had massive destruction in the Gulf region which will take about a ½% off Gross Domestic Product next quarter and probably next year as well. More than a million people displaced, left with nothing and out of work because their work places disappeared. Oil prices hitting record highs around $72 per barrel and unleaded gasoline, depending upon where you live, jumping by 50% or more overnight. Retailer after retailer lowering there forward looking guidance because of this horrendous event as well as prices at the pump. As you know I could go on and on about the news that week, what is really, really, important though, is why did the market not plunge? It was already wounded like an animal just hit by an arrow, off recent highs, yet it held like a rock, the bears could not make the bull lie down and die. The bull may be aging, in fact may even be entering its golden years, in human terms, but there is still life, a fighting life. It shouldn't have been saying something to you, it should have been shouting at the top of its lungs -> Buy Me just like that cute puppy in the window, if nothing more than for a trade.
I saw this little quip posted on a message board this past week, and in light of the last two paragraphs, thought it applied very well and would pass it on. I have printed this out to keep on my desk and refer to it from time to time.
Wall Street’s number ONE job is to make OUR money THEIR money!
Our number one job is to make THEIR money OUR money!
For Wall Street to get me to give them my money they have to get me on the wrong side of the trade. What could be a better way than play to the basic human emotions of greed, fear, and ego. Right now we have a perfect fear situation making us emotional beings to get short because logically we can see where all of this will lead.
Wall Street knows we want to be short because it is sooooooo logical. If they were also shorting, don't you think we would have taken out DOW 10175 and SPX 1180 a few weeks ago? We didn't. That has to tell you volumes as to what is going on.
This is why you have to forget fundamentals for trading, not investing. Wall Street takes whatever is happening, turns it into a fear or greed event, and then takes the opposite side waiting for us logical beings to give them what they want .... OUR MONEY!
The battle is between conventional wisdom and uncommon market savvy.
There are times when it is not only possible but probable that you will make money without looking at fundamentals, without looking at charts, just by saying to yourself the market should have done this, it didn't, so we must be going the other way!
Tuesday, this past week it was reported by CBS Marketwatch that the venerable Richard Russell, whom many consider to be a permabear (he is not) has turned bullish. Before anyone totally dismisses what Mr. Russell has to say hear this. According to Mark Hulburt who has been tracking advisors since 1980 Russell has a good track record. In fact, when ranked on the basis of the performance of just their stock market timing recommendations, Russell's is in second place among all the newsletters the Hulbert Financial Digest has tracked since 1980. He has just not been right recently and that happens to everyone, repeat everyone in this business.
According to the report: Richard Russell was looking at the following:
The first thing is the new all-time high in the (DJUA) Dow Jones Utility Average. According to Russell, "Normally, the Utility Average will hit its highs well before the final high in a bull market, although there have been times when the Utility Average topped out simultaneously with the bull market high."
The second is a chart that has Russell "bug-eyed," one that he "stared at ... for half-an-hour in astonishment." Russell is referring to a particular point and figure chart for the S&P 500 index that is designed only to show major reversals. (Point and figure charts are ones that technicians use to filter out minor price movements that are considered to be merely noise, enabling them to better focus on the bigger picture.)
According to Russell, "The chart shows that if the S&P rises to 1,250, this would be a powerful upside breakout, with a large upside target hundreds of points higher."
The S&P 500 closed Friday at 1,241,48 less than 9 points away.
When, in June I started the most improved groups and ETF's report that appears in each newsletter, I had suspicions of what we might find over time, but that was all, suspicion. Now that 3 months have passed since this was initiated I'd like to point to one very successful find, in the very beginning (and when you really think about it, how many good finds does one really need, to make really good money in the markets?). Gold and Silver, as measured first by PT-PPO and also by Relative Strength over the last 6 months were showing the greatest improvements in the raw data, not necessarily ranking, again this was back in June and July plenty of time to act. If you had proceeded to put several on your watch list right away, and chip away as the opportunities then presented themselves, you would be in a very enviable position today. Obviously this will not always happen, nothing ever does, and sometimes the setups will take time from when they first appear, but then the objective is to direct attention to, and away from. And interestingly enough this report is now directing my attention away from the energy sector (see below). This may as in the case of the metals take time to develop but I am currently out of all energy and not looking to reenter or to short, just looking for the next opportunity. This is not to say that energy will not reemerge at some point in time, just not at this time. Remember as traders, as speculators, we are seeking opportunity to act on and then looking for the proper set up in order to act. The setup I refer to is not a specific one, but one that attempts to put the odds in our favor with reduced risk exposure.
Now let us assume (yes I know what that word means *grin*) that this final real big rally that I have been looking for and now Richard Russell is looking for is upon us what do we buy. Why not take a look at this weeks most improved as a good place to start.
This Week's Economic Reports
Have A Great Week!BillDisclaimer: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.
When, in June I started the most improved groups and ETF's report that appears in each newsletter, I had suspicions of what we might find over time, but that was all, suspicion. Now that 3 months have passed since this was initiated I'd like to point to one very successful find, in the very beginning (and when you really think about it, how many good finds does one really need, to make really good money in the markets?). Gold and Silver, as measured first by PT-PPO and also by Relative Strength over the last 6 months were showing the greatest improvements in the raw data, not necessarily ranking, again this was back in June and July plenty of time to act. If you had proceeded to put several on your watch list right away, and chip away as the opportunities then presented themselves, you would be in a very enviable position today. Obviously this will not always happen, nothing ever does, and sometimes the setups will take time from when they first appear, but then the objective is to direct attention to, and away from. And interestingly enough this report is now directing my attention away from the energy sector (see below). This may as in the case of the metals take time to develop but I am currently out of all energy and not looking to reenter or to short, just looking for the next opportunity. This is not to say that energy will not reemerge at some point in time, just not at this time. Remember as traders, as speculators, we are seeking opportunity to act on and then looking for the proper set up in order to act. The setup I refer to is not a specific one, but one that attempts to put the odds in our favor with reduced risk exposure.
Now let us assume (yes I know what that word means *grin*) that this final real big rally that I have been looking for and now Richard Russell is looking for is upon us what do we buy. Why not take a look at this weeks most improved as a good place to start.
This Week's Economic Reports