Being an Independent Operator is a skill that seems difficult to do for most aspiring traders. The ability to cancel the noise regarding various opinions from fellow market participants is essential to being profitable in the years to come. Craving for the insights of other traders towards your trade selection is not an ideal way of amassing consistency in the long run.
The late Jesse Livermore, one of the best traders in the world, also succumbed to the opinions of others back in the day. This shortly led him to financial ruin. As he exclaims, the markets are never wrong, only opinions are. Furthermore, the late Nicolas Darvas also experienced something similar.
After developing the Darvas Box system, there was a phase in his life where he moved next to the office of one of his brokers. This led him to jive in with rumors, opinions, and insights with regards to his stock selection. After both critically acclaimed traders experienced turmoil, they started to commit to the golden rule of deciding their stock selections by themselves.
Source: QuotesonFinance.com
Even if these events happened sixty to eighty years ago, it is still relevant up to this day. These events still happen in the trading community today. People pushing their thoughts in social media, people debating about their stock picks, people telling the community to ride in the stock as it reaches the moon. Unfortunately, this is inevitable.
The financial markets will never change so long as human nature never changes. Given that it is predominantly humans who trade the markets, the behavior of which will always be in accordance with human nature.
Source: Steve Burns’ Twitter Post
If you crave and rely on another person’s bias towards a stock or any asset class, how can you become an independent operator? It is a fact that everyone is unique. We have different perceptions regarding a subject matter.
Avoid being succumbed to rumors and opinions about the markets. I am not saying that we should not seek individuals who are better than us to guide us in our journey, what I am trying to say is that you have to learn how to take things with a grain of salt. Seek knowledge and insights on HOW TO DO IT ON YOUR OWN. Just as in life, you cannot long for your parents’ guidance forever.
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For this week, we would like to congratulate our featured trader: Tardigrade Trader a.k.a. @tardigradetrader!
This trader was able to spot a sleeper. $ALLHC or AyalaLand Logistics Holdings Corp. was not talked about not until it broke out of its initial base supported with enormous volume. Tardigrade Trader a.k.a. @tardigradetrader is an active member of the Investagrams community who endlessly spreads his knowledge on Technical Analysis along with his complete thought process in each of his stock selection.
Along with his qualitative assessment about the said stock, he also exclaimed about how minimalism can be applied in trading as well. As mentioned in the previous posts regarding the featured traders, whether the strategy of a said market participant is basic or advanced, their performance will always depend on the end-user itself.
Tardigrade Trader highlighted the importance of an initial consolidation phase before a much-awaited breakout. Patience is the key to spot market leaders. There will be countless times that it will take several weeks or months for a trade to blossom. Moreover, he also added the significance of RSI (14) 70 breaches along with massive volume in the breakout of the pivot high, which further solidifies the said trend.
A breakout of the 1.9 to 2-peso area was an ideal buy point as it was the breakout of the initial base or the symmetrical triangle supported with increasing volume on its up move. It is a low-risk, high-reward trade, as the stop loss levels for the said breakout point could be below 1.8 (-4.5%) if you bought it on a symmetrical triangle pattern. On the other hand, the stop-loss levels for the said breakout point could be below 1.9 (-4.5%) if you bought above the 2-peso psychological resistance level. Take profit areas could be the structural resistance at 2.5 (24%-33%).
It is a must for this stock to hover and sustain above the 2.5 psychological levels to further signify its ascendency. If it does, we may see it consolidate from here. The next significant resistance level would be the 3-peso area being the next structural and psychological levels, along with the 3.8-peso levels being the 52wk high of the said name.
It is a non-negotiable for traders to wait for the right setup. A setup where you could spot names to emerge just like $ALLHC. Waiting for the right moment to click the buy or sell button when all your parameters are finally aligned with a particular name is the ultimate embodiment of professional trading.
Congratulations to those who were able to maximize the technical swing of $ALLHC. Lastly, kudos again to Tardigrade Trader a.k.a. @tardigradetrader for sharing his trade analysis. Your FREE 1 Month InvestaPRO access is on its way!
If you are a technical trader, chances are, the trendline is one of the first charting tools that you have learned to use. Its elegance comes from its simplicity: just trace the line and either follow the trend or wait for a breakout. However, like supports and resistances, trendlines are prone to both fakeouts and shakeouts. If you find yourself a constant victim to these fakeouts and shakeouts, then maybe your trendline strategy is missing the most important component: confluence.
In the world of trading, confluence refers to the convergence of different trading strategies. An example would be a set of moving averages, structural supports, and fibonacci retracements all indicating the same critical level for a certain stock. This critical level is often referred to as an area of high confluence. The idea behind the importance of an area of high confluence banks on the fact that different traders use different trading strategies.
From time to time, a high number of traders will consider a price level critical in accordance with their strategy. Once the price reaches this level, there will be a surge in the number of buyers/sellers since a lot of traders consider the price as a critical level. In a nutshell, areas of high confluences often equate to higher probabilities.
Incorporating areas of high confluences with your trendline strategy is as easy as making sure that the price touched an area of high confluence before approaching a trendline. This removes the small errors from mistakes in drawing your trendline as well as irregular market behavior.
Essentially, the key takeaway is that trendline breakouts and breakdowns are invalid if the price did not come from an area of high confluence prior to the breakout/breakdown. This strategy goes well with both breakout trading and trend following since a breakdown from the trendline without a bounce from an area of high confluence is probably a shakeout and not a trend reversal.
Fakeout vs BreakoutShakeout vs Breakdown
Areas of High Confluence can be composed of (but not limited to) any of the following:
Chart patterns
Range support and resistance levels
Moving Averages
Bollinger Bands
Ichimoku Clouds
Fibonacci Retracement Levels
It is important to note that for your trendline strategy to be effective, you should not only consider areas of high confluences but also the plotting of the trendline itself. The price should touch the trendline at least two times, the more touches, the better. Including the wicks depends entirely on your judgement as a trader as well as the “DNA” of the historical behaviour of the stock. With all this said, let’s head on to some examples.
$ALI [DAILY][2016]
In the photo above, there is a defined trendline on the daily chart of $ALI. We can see that the 40 price level is an area of high confluence because of the following factors: (1) it is a psychological resistance, (2) it is the high of the previous uptrend, (3) the price is already at the top of the Bollinger bands, (4) the RSI is near overbought levels.
Because the price bounced from an area of high confluence before breaking the trendline, there is a high probability that the price action is a breakdown and not just a shakeout. As we can see through what happens next, the move is in fact a breakdown of the trendline.
$SMPH [WEEKLY][2016-2018]In the case of $SMPH, the 40 price level serves as a psychological resistance which the stock tried to break prior to the breakdown from the trendline. Aside from a trendline break, we can see that the chart actually looks like a normal bearish RSI divergence. This validates our initial hypothesis that the move is a breakdown and not a shakeout. Aside from this we can see that the MACD is showing bearish signs with the histogram expanding below zero.
This trendline strategy shows us that although we should develop a trading system that is tailored to our specific needs, we should also be familiar with tools and indicators outside of our system. This helps us widen our understanding of where the market might be headed since we are not only tapping into one strategy, but to multiple ones at the same time.
The stock market is basically a psychological battle between traders of different niches after all. Normal trading rules (take profit, position sizing, and stop loss) still apply. All of these strategies will help you trade the confluence and hopefully take you one step closer to financial freedom.
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Never just invest, but invest with a clear mind, invesTHINK!
A good and great trader and investor must refrain from having a prejudice or biased preference. Lots of mistakes can also be rooted from a common mistake, which is then again, having a fallacious and biased concept about the stock market. Exhibiting and executing decisions based on emotions, peer influences, or your confidence towards the market, may happen at times. However, it is a sign of poor financial literacy towards the stock market.
What are your signals and indicators when you begin to enter and exit from the stock market? Were you just hyped among your peers? Have you monitored and checked the 20-day moving average and 50-day average? Here are the common biases you might encounter while creating decisions and analyzing your stocks. Who are you among these?
The Hyped: Social proof
One of the most common biases and errors occur are due to being hyped with the decision of peers and trends in the community. People tend to be under peer pressure and follow the idea of the majority. Which on the latter, we deem it to be true. Now, the wrong thing about this is that we overlook on the importance and essence of doing our own analysis. It’s just like eating the same flavor of ice cream with your barkada, not knowing that it contains peanuts, which you are allergic too! Do you now realize the danger?
The Follower: Confirmation bias and Groupthink
“Ano gagawin mo? Bibilhin mo na ba ngayon?
Down market diba, mag-aaverage down ka na ba ng stock mo?” This type of thinking shows a flaw, a misconception. Now following and agreeing turns out to be a bias if you try to prove and justify your decision based on the actions of someone else. You try to seek out the support and the same thinking among your peers.
Now with groupthink, just because everyone else says that “babagsak na yan, benta mo na” does not always mean they are right. Once you set foot in this bias, you lose the discipline and creativity of solving your own problems.
The Madame Auring, Manghuhula: Hindsight bias
Regrets and disappointments run fast, once you begin to suffer. Some investors and traders try to predict the movement, value, and the future of the stock based on their indicators. “All time low siya noong 2020, 10 pesos na lang siya. Ngayon 11 pesos na lang, bilhin ko na ulit!” The misleading factor on this is that, you tend to look for a similar cause that would make you react whenever the market crashes. You try to create your own predictions and make poor decisions whenever a certain event have occurred. To avoid this, always examine, record, and journal your outcomes.
The Blind: Clustering Illusion
In order to analyze charts, we use several indicators such as candlestick patterns, moving averages, RSI, volumes, and support and resistance. It is also necessary to check on the historical performance of the stock, may it be a daily, weekly, monthly, or yearly basis. However, clustering illusion happens when people tend to become oversensitive and seeing patterns where actually none have existed. Is it possible? Yes. If a trader or investor sees that the market structure repetitively illustrates higher highs, higher lows, higher highs, higher lows, the investor or trader may think that the market is going uptrend. It may seem like it, but always be cautious on the movement. Never create assumptions based on seeking certainty on your own perception.
Conclusion
Always be grounded with a strong foundation of principles and rules, in dealing with the stock market. Decision making will always be difficult, and that should be recognized. However, to be able to create a sound decision takes a lot of learning and re-learning. Always have a discipline in your study routines. And one day, you will achieve success too.
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Even if the local index may look like it is consolidating from here given its current price structure, various names have emerged. Hisuka (@b0yipit) was able to depart the world of HunterxHunter to further solidify the use of his Nen to spot potential market leaders such as $CNPF or Century Pacific Food, Inc. Hisuka a.k.a. @b0yipit is an active member of the Investagrams community who endlessly spreads his knowledge on the local market with the use of Technical Analysis.
Even if this stock is quite illiquid, it still presented opportunities on the daily chart. Moreover, this stock is nearing all-time high levels. During its consolidation phase, the sideways movement was supported with dried-up volume. Upon its breakout of the underlying base, the move was supported with above-average volume.
A breakout of the 15-peso area was an ideal buy point as it was the breakout of the parallel channel line supported with above-average volume. It is a low-risk, high-reward trade, as the stop loss levels for the said breakout point could be below 14.5 (-4%), and the take profit areas could be the structural resistance at 17.5 (17%). Another tranche opportunity also emerged when the stock formed a small base ranging from 16 to 16.5-peso area. The breakout of the said mini base was also a good opportunity to add to your position as the stop loss levels for the said pivot area could be below 15.8 (-4.5%).
Looking at the bigger picture, the monthly chart of this stock is also pleasing. The previous breakout of the 15-peso area proved to be significant as it broke out of the long-term parallel channel line along with immense volume.
It is best for $CNPF to consolidate below the All-Time high levels with dried-up volume to form a constructive base. A break above the 19-peso area in confluence with massive volume is superlative for this stock to continue its dominance.
As Hisuka (@b0yipit) stated in his post, everyone is indeed entitled to their own opinion. Everyone may view a chart differently from that of the latter. If you have formulated and followed your concise trading plan, then there should not be any problem. Take it with a grain of salt, the decision, in the end, must come from your own bias. Relying on the opinions of other individuals will lead you to financial ruin. Great traders such as Jesse Livermore and Nicolas Darvas have experienced this the hard way.
Congratulations to those who were able to maximize the up move of $CNPF. Lastly, kudos again to Hisuka a.k.a. @b0yipit for sharing his trade analysis. Your FREE 1- Month InvestaPRO access is on its way!
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With the increasing number of competitions available to the public, newbie traders might be wondering whether or not joining a competition may offer significant advantages as opposed to sticking to virtual trade. With Investagrams, the platforms for virtual trade and competitions offer similar features. They both offer a way to trade with virtual cash while using real time data which simulates real time scenarios without the risk of losing capital. Obviously, competitions give you the chance to win prizes. But the advantages of joining competitions extend beyond monetary value.
Thinking Long Term
The advantages you can get from joining competitions mostly revolve around your discipline as a trader. When joining a competition, you are encouraged to look beyond short term gains and onto sustainable growth. This forces you to protect your capital through proper position sizing and appropriate exits. Although you can do this through virtual trade, it is very easy to just reset your account or to lose interest in your virtual trade portfolio if you get a losing streak. It is important to note that competitions are marathons, not sprints because local competitions usually last for around 4 months. This means that no matter how much gains you get with one trade, if you can’t sustain this growth then you’ll most probably get overtaken by your competitors.
Beating the Market
Competitions also encourage you to push yourself beyond merely being profitable to actually being more profitable than the rest of the market. Of course, there are ways to do this through virtual trading such as setting a monthly goal or using the index to track your performance. However, these goals are not as dynamic as directly comparing yourself to similar traders at the same level. Having the ability to compare your performance to other traders in real time will have you constantly searching for high probability trades instead of passively riding on trending stocks.
Being Part of a Community
Aside from prizes and technical benefits, you also get a better sense of community. For example, Investagrams’ group feature offers a way for Trading Cup 2020 participants to share their learnings and insights throughout the whole competition. Because competitions let people have the same initial capital as well as the same restrictions on the number of trades per day and lock in periods, all participants effectively start on the same level which makes it easier for participants to relate to each other. Ideally, this behaviour will spillover to the whole trading community even after the competitions end.
Overall, joining a competition offers a good benchmark on whether or not your strategy is optimal. If you find yourself underperforming compared to your competitors, then you may want to realign your learnings and backtest your strategies in order to find the optimal system for you. However, if you find yourself performing better than others, then maybe you should think about transitioning to using a real portfolio with real cash or maybe even consider a career in professional fund managing. Joining a competition is truly a great opportunity that newbies and intermediate traders alike should not pass on.
It’s time to challenge yourself.
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In any kind of team sport having LEADERS is always important.
The names we give positions of leadership whether they be managers, trainers or coaches are mostly only made to define specific roles in a team. As backseat personalities, such roles can overlap. They are there to either provide logistics, formulate strategies and game plans, or give instructions in real time situations. Among those other components of course, they must share the visions and ideals of the team and would be expected to work hard to PREPARE it towards achieving set goals.
When game time commences, while coaches still play active roles, the burden of performance now shifts to the players. Physical and mental conditioning during the training phase are critical to the outcome. Endurance and tenacity usually become differentiating factors. One team may easily dominate a league if and when it is properly trained, well coached, and have a roster of talented players. In real life sports competitions however, close matches usually tend to happen. And at crunch time, leadership qualities will inevitably become of much higher importance.
In a game of basketball for instance, while positions may have been set with roles well defined, a single person is almost always tasked to initiate plays and carry the burden of leadership. Most often, the POINT GUARD takes the helm. He/she would surely not only have excellent ball handling skills, but the needed “command and court sense” to execute set plays.
The POINT GUARD must also be able read into the defense, put the play into motion and when needed, modify or innovate by providing visual or audible signals to his team mates as the situation calls for it.
In the end, the objective of scoring against the opponent is achieved only if most of the players contribute either by moving the ball into scoring position, giving out an assist, providing a pick or a screen, and most important of all, TAKING THE SHOT.
Of course, not all shots will go in. But if the players know and have confidence in their skills, they TRUST and execute the play. Whether drawn or improvised, taking the shot before time expires is an absolute must. You might miss it and make only say, half your attempts. That will always be better than not taking one.
In an actual game, the PG (point guard) is expected to perform most of the following: Know the players on the court for his team in terms of their capabilities particularly the strengths and weaknesses of each and every one.
Communicate instructions on the fly and execute drawn up or preset or plays.
Survey the field of direct and peripheral vision and read into the opposing team’s defense (or offense). He must make his unit react to on-court movements and respond accordingly to evolving situations. He must always improvise when necessary.
Provide visible leadership that will spur his team mates to raise their level to confidently gain and achieve victory.
People who trade the market should be like point guards.
Although except for the most part we are all only a one-man team. Sure, we sometimes collaborate with other traders or maybe become members of a small, like-minded community but in the end, we play the game alone and by ourselves.
That does not mean though that we cannot apply the “game on” mentality. After all, we constantly train ourselves by being actively or passively engaged in the market. Eventually we evolve with a skill set not unlike a prized POINT GUARD.
Here’s how:
Finding high probability trades using an objective process of stock selection.
Like PGs we survey the court and pick on which side is best to create a play. We carefully consider available choices using set criteria as volatility, momentum, and liquidity and pick a path to follow. Needless to say, picking the right stock to play with is an all-important process that we try to master. It’s like having a DREAM TEAM in your portfolio where when chosen correctly should paste a smile on your face. For us traders, it should not be about popularity although a favorable market sentiment is always welcome.
A methodical trader will always let the numbers do the talking. Quant-based methods provided by trading support providers (like BoH Society) are both impersonal and objective. And preferably using a mathematically-derived short list of candidates in a field of current market leaders that exponentially increases chances of success, we decide on where to set our laser sights on.
Knowing the strengths and weaknesses of our potential trades.
Great PGs are like playing coaches. By both instinct and experience they know which options they can take to create mismatches against the opponent. He finds them and exploits the perceived disadvantage. Loosely translated, it would be like how we view the possible setups, in relation to supports and resistances, and ultimately in the actual Reward to Risk ratio (R/R).
Buying near supports and selling near resistances is the simplest strategy anyone can take. And by most standards the best one that should rack up your wins.
Employing the capabilities of various chart indicators.
In modern day sports programs, the good ones recognize the value of data. When you are using algo-based information, statistics are gathered, collated and brought to life as visual infographics. Most often, team leaders like the PGs are given this information and during pregame huddles discuss with the coaching staff how to work with such in offense or defense plays.
For us traders, this visual data is available in select indicators for us to interpret. The more common ones like Stochastics, RSI, various moving averages, Bollinger bands, etc., can provide evidence or confirmation of price behavior.
It’s quite simply like putting trust in a closely-knit team that you know is there to support you. Of course as they say, less is more. As each has a defined role that has been tested and proven, the trader must now rely on each one to deliver pertinent information that can be useful at the most opportune time.
Execute a trading plan with a proper scale of commitment(aka position size).
A good PG always knows how to set the right pace. In a 48-minute game, he is not likely going to run fast breaks every time. Instead he would try and change the pace every so often and keep the opposing team guessing. Tactics require variations in order to be effective and conserving energy for an end game is crucial to winning.
This is a strategy that all traders must hold dear and have ingrained in their minds.
Capital preservation is always of paramount importance. We need to constantly realize that the only improvisation available for us is in having the will to cut losses, adjust trail stops, average up, or simply take profits. Like the skillful PG, a decisive advance or retreat is the key to securing long term success as traders.
Because win or lose, there is always the NEXT GAME.
Contributor:
Name: Jojo Gaston
Investagrams Username: @JojoGaston0
About the Contributor:
Jojo Gaston is a partner/mentor at BoH Society, an online trading support group that provides traders’ education, and data driven trading format for local stocks, forex, and other foreign markets.
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