How to Buy Weakness In An Uptrend

There is an important tool in my toolbox that helps me successfully navigate capital markets and that is to buy weakness in uptrends.  When in a bull market, it is a series of higher highs and higher lows. In addition to buying strength (only buying breakouts) is to step up and buy weakness in strong uptrends.  It is important to keep in mind that eventually all bull markets end.  However, until they do, buying weakness in uptrends can offer the astute trader tremendous risk-adjusted returns over the long term.How to Buy Weakness in Uptrends
 

3 ways to Buy Weakness In Uptrends:

  1. Listen to the Market

  2. Let Patterns Emerge

  3. Begin buying (and average up) as the market bounces off a near-term low

Will I buy the exact bottom? No. But that is not my goal. My goal is to capture the bulk of the move, not pick an exact top or bottom. Why? Because, over time I know that I can consistently capture large moves in the market without having to pick the exact top or bottom. Additionally, I have yet to find someone who can consistently, and accurately, pick exact tops or bottoms of every move. The more evidence that emerges to support the logic that a near-term low has just developed, the better.
 

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Two Ways to Find And Own Monster Stocks

Here are two primary ways to find and own monster stocks:

 

 

 

1) Identify Shared Characteristics

Before you can find the next monster stock, it is important to understand the broader concept of what characteristics most monster stocks share before their explosive moves.  Let’s look at Starbucks for example.  The idea is to find and own shares of this company’s stock when it only has a few hundred locations, not after it has built an empire of thousands and thousands of stores.

Two Ways to Find And Own Monster Stocks

Another important trait that monster stocks share is that they breakout from bullish technical patterns. The earliest being a bullish IPO base. These bases come in many different shapes and sizes but catching these big winners near (or shortly after) an IPO base is a great way to find the next monster stock.  Remember not every monster stock has strong fundamentals or technicals, but most of the biggest ones do. 

2) Look for New Merchandise

Another key way to identify a monster stock is to look for new merchandise and identify the right IPO (Initial Public Offering).  In order to do this, you need to understand the importance behind why companies go public. 

Let’s start from the beginning.  A new company is just formed and, after time passes, it finds itself growing.  One popular way to finance that growth and take the company to the next level is to go public.  In practice, the company sells shares to the public and in exchange uses the money to help grow its business. Then, after the IPO, the stock is publicly traded and investors are able to buy shares and own a piece of this growing business.

How to Find and Own Monster StocksAs the company continues to grow they begin posting strong sales and earnings growth, quarter after quarter, and year after year. This, in turn, attracts many investors who begin buying the stock. As more and more people buy the stock, the shares inevitably rally and it attracts even more and more investors. This is how a monster stock is born and is one reason why astute investors look for new merchandise. Finding the right IPO will help you catch monster stocks nice and early.

 

 

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5 Steps To Becoming A Long-Term Success in the Market

Steps to Becoming a Long-Term Success in the MarketProfits are a function of time. By definition, any trade that is exited with a profit requires a certain element of time. The problem is that most people have a natural tendency to seek immediate gratification at the expense of long-term gratification. That is why most people lose money on Wall Street.

5 Steps to becoming a long-term success in the marketThink about a diet- why do most people struggle to lose weight? The answer is human nature. Most people do not have the willpower or ability to delay gratification, even if it is in their best interest.  Therefore, instead of going to the gym and experiencing short-term pain, most people sit on their couch and eat chocolate. The immediate gratification of eating chocolate is more powerful than an often immeasurable benefit of going to the gym and eating right. The same phenomenon plays out in all areas of life, especially on Wall Street.

I see this phenomenon manifest itself everyday in the stock market. In theory, what should matter most is the absolute ROI.  However, unsuccessful clients are always looking for the Holy Grail.  They jump from strategy to strategy or portfolio manager to portfolio manager in search of immediate gratification. Years pass and they are always behind.  On the other hand, successful investors are patient and understand profits are a function of time. They are able to exercise patience and win in the long-term.

Here are 5 Steps To Becoming A Long-Term Success:

1. Make Rational, Not Emotional, Decisions

Do you have a plan to enter and exit your trades? Or do you just wing it? If you have a plan, write down your rules and make sure you trade your plan. If you can’t follow your rules, hire someone who can.

2. Respect Risk

Wall Street is not going anywhere. If you risk too much your emotions will take over and you will likely go broke. Always know where you are going to exit before you enter and how much you are going to risk if wrong.

3. Don’t judge your success one trade at a time

Losing money is part of trading. It happens to everyone. Once you realize that outcome will happen, you can plan for it and get past normal pitfalls such as giving up on your system after a few losing trades.

4. Think like a winner

Remember, winning starts within. How you think is everything!

5. Ask For Help

5 Steps to becoming a long-term success in the marketMaking money on Wall Street is simple, but definitely not easy. Don’t let your ego get in your way of making money. Most people have a hard time asking for help. That’s just one reason why most people lose money on Wall Street.  You don’t have to go it alone.  Find someone you trust and are comfortable with and don’t be afraid to ask for help.

 

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Facts Will Make You Money, Not Headlines

Contrary to most people, I am not glued to my screen all day and do not read every headline that crosses the wire. Instead, I prefer to only read one headline… The MARKET.

I make my best decisions when the markets are closed, typically nights or the weekend. This process allows me to remove my emotions from the decision-making process, create a plan for the week and then let the market guide me in and/or out. 

Facts will make you money, not headinesThe Market is Speaking.  Are you Listening?

I do my best to drown out all the noise and distractions out there and instead focus on the tape.  I like to say that the market is speaking.  Are you listening? For me, it is tough to listen to the 24/7 daily news and the market at the same time. The news typically wins because it is non-stop and real people are speaking. The market is very quiet and doesn’t say a word. My job is to listen, interpret what I see happening, and adjust my positions when the facts change.

Facts Matter, Headlines Don’t.

Don’t let the latest headlines scare you. It is very easy to get caught up in the fear or daily headline.  Avoid the temptation!  Think about all the negative headlines the market has digested over the years.  Meanwhile, the S&P 500 continues to make new highs.  That said, what is more important… the facts or the latest headline?

 

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Stacking the Odds of Success in Your Favor

In life, and in the stock market, success is about stacking the odds of success in your favor.

In Las Vegas, there is an old adage that says you want to always know who the smartest guy in the room is.  Most people look around the room and try to size up their competition.

However, the real answer in this scenario is that the smartest guy in the room is the person who OWNS the room! Why? Because the person who owns the room knows that, in the long-term, the odds of success are clearly stacked in their favor!

Focus on Probabilities, Not Possibilities:

The same rule applies to Wall Street and most other endeavors in life. Before making a decision where the outcome is uncertain, ask yourself:

Are the odds of success stacked in my favor?

If not, you might want to think twice before making that decision. Remember, anything is possible in life, but success comes from measuring what is probable.

The same thing is true for buying and selling stocks on Wall Street. Define and measure your downside before you enter the trade.  This way you know exactly where you will exit if wrong and how much you will lose. If you are comfortable with that risk, and see a favorable reward, then you should take the trade. Otherwise, if the risk or reward ratio is not favorable then move onto the next idea.

 

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