Fear or Fact, What is Guiding Your Trading Decisions
Stockscores.com Perspectives for the week ending October 5, 2015
In this week's issue:
In This Week's Issue:
- Stockscores' Market Minutes Video - Buy the Dips, Sell the Rips
- Stockscores Trader Training - Fear or Fact, What Guides Your Trading Decisions
- Stock Features of the Week - Canadian Energy
Stockscores Market Minutes Video - Buy the Dips, Sell the Rips
Stocks and markets do not go straight up or straight down, creating opportunity for those willing to trade on the short counter trends within a price channel. That explained plus my regular weekly market analysis.Click Here to Watch To get instant updates when I upload a new video, subscribe to the Stockscores Youtube Channel.
Trader Training - Fear or Fact, What Guides Your Trading Decisions
Speaking from experience, I have found that most mistakes in trading are the result of succumbing to fear. When I say mistakes, I don't mean losses since losing money on trades is part of trading. Instead, I mean those bad trades that we all take which don't fit in to our trading strategy and plan.
The fear based decisions that cause us to deviate from our trading rules can be broken down in to two types.
First, the trading decisions that we make because of our fear of losing money. These are usually exit trades; we sell too early for fear that our winner will turn in to a loser. Perhaps we fail to take a trade that fits our criteria because our "common sense" tells us there is something wrong with the trade and that it can't succeed. Maybe we enter a trade later than we should because we want to see the market prove our trading idea correct, only to end up getting in once much of the run has happened.
The second fear based trading mistakes we make are those that are the result of our fear of missing out. These tend to be on the entry; we take trades that don't quite fit our rules because we focus on what might be, the profits that could happen. It may be that we listen to an "expert" in the media or follow the actions of the crowd and do what the headlines are telling us to do.
Have you ever succumbed to either of these fear based trading mistakes?
If you are a normal human being, I think it is highly unlikely that you have not. Since they happen to all of us, we need to figure out a solution. Fortunately, the solution is quite simple.
Rather than focus on fear, focus on fact. Make trades based on what is happening, not what you think could happen.
Many have described fear as "future events appearing real". We don't walk down a dark alley at night because we might get mugged. We don't swim in the ocean because we might get attacked by a shark. We don't fly on a plane because it might crash.
When we focus on what might happen, what our fear tells us to do, we typically ignore probability. The probability of getting attacked by a shark is extremely low. Last year, you actually had a greater chance of dying taking a selfie photograph than by being attacked by a shark. If we focus on fact, we get better results.
This does not mean you should ignore fear. It is there to protect us and, when probability is on the side of the decision, it is best to listen to fear. I stopped flying small airplanes because the statistics showed that it was a dangerous thing to do. I still trade stocks because I have strategies that put the statistics in my favor.
When you trade, take your focus off of your emotion and look at the facts. Develop a trading strategy that puts probability for profit in your favor. Have a process in place to assess the facts and take the trades that meet your requirements. Overcome fear in favor of fact.
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The Oil market, and Energy stocks, have been trying to bottom for some time but catching the bottom of steep downward move is a difficult thing to do. It takes time for fear based selling to turn in to opportunity.
I am seeing signs today that Canadian Energy stocks are trying to make the turn. At this point, I think buying stocks in the sector has a high reward potential if it works but the probability of it working is still relatively low. Still, for the investor willing to be patient, this could be a good time to start to buy stocks from this group.
This week I ran some Market Scans on Stockscores to identify some Canadian Energy stocks that may have seen their lows and are set to turn around.
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1. T.SGY
T.SGY has broken its long term downward trend and is moving up today from a rising bottom.f
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2. T.BIR
T.BIR has an almost identical pattern to T.SGY as it too breaks higher from a rising bottom with a break of the long term downward trend.
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3. T.XEG
The downward trend in T.XEG from April has been broken after a rising bottom formed over the last month. This ETF represents a basket of Canadian Energy stocks, a good way to get some diversification if you believe in the turnaround.
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References
Get the Stockscore on any of over 20,000 North American stocks.
Background on the theories used by Stockscores.
Strategies that can help you find new opportunities.
Scan the market using extensive filter criteria.
Build a portfolio of stocks and view a slide show of their charts.
See which sectors are leading the market, and their components.
Disclaimer
This is not an investment advisory, and should not be used to make
investment decisions. Information in Stockscores Perspectives is often
opinionated and should be considered for information purposes only. No
stock exchange anywhere has approved or disapproved of the information
contained herein. There is no express or implied solicitation to buy or
sell securities. The writers and editors of Perspectives may have positions
in the stocks discussed above and may trade in the stocks mentioned. Don't
consider buying or selling any stock without conducting your own due diligence.
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