Most, if not all, analysts being interviewed lately have been advising investors, who have been battered by the bearish market brought about by CoVid-19, to be optimistic and think 5 to 10 years down the road. That’s an incomplete advice if not a wrong one. That’s only a reactive but not a proactive advice.
Investors, whose portfolio are in the negative territory, are always thrilled to hear “think long-term” kind of advice, without regard to their personal risk tolerance, because it’s like the analyst is seconding the motion of their plan of holding their position even if it’s already way beyond their tolerable risk.
If that’s the only advice you’ll give to people, it only helps them JUSTIFY their error, but it doesn’t RECTIFY the mess. Justification is not the same as correction.
Investors, didn’t you know that if your portfolio is down by 50 percent, the price must appreciate by 100 percent for you to breakeven? You didn’t get that, did you? Okay, let’s pause for a while and wait until 11:59PM for that to sync in.
Okay, let’s assume it’s already 11:59PM so I can continue.
Regardless of the sentiment of any-who, your investment or trade decision must be predicated to YOUR risk tolerance alone; not on Warren Buffett’s or any person’s risk tolerance.
Here’s what I always advise my clients of.
Before you buy the stock, regardless whether you’re into short-term trading or long-term investing, you need to have a method that will help you identify confirmed buy signals.
It’s not mandatory to always rely on classical methods. Look at me. I created my own methodology that is not found on Google or YouTube (unless I’m the uploader).
Then, you back-test your strategy. Don’t just decide to use this indicator, that indicator, and ka-boom! That’s it? No! Make it go through the acid test so you can see if your strategy can yield more potential wins than potential losses. Make necessary adjustments until you’re satisfied with the ratio between potential wins and potential losses.
Once confirmed buy signals are spotted, you need to identify the immediate support and resistance levels of the stock. There are many YouTube videos that will teach you several ways of plotting support and resistance levels.
You need to know if the prevailing price is still closer to the immediate support than the immediate resistance. This is important because before you enter a trade, the upside potential must be relatively bigger than the downside potential.
That sounds like a no-brainer, doesn’t it? Well, ladies and gentlemen, after guiding thousands of traders and investors since 2014, I have the gall to say that the no-brainers are the most overlooked stuff as far as our topic is concerned.
Understand that resistance levels are commonly translated as selling points. I said “commonly” and not “always”. Here comes the role of psychology in trading.
When you have sound understanding of human behavior, you might be able to pre-empt what traders or investors might be thinking of.
Ideally, especially if you’re a low-risk investor, you don’t want to enter a trade if the prevailing price is already closer to the resistance than the support level because that’s like you’re hunting for a small wild cat while a polar bear is hunting you down.
In other words, the tiny upside potential is not worth the humongous downside potential. Nonetheless, you can give it a go if you’re a high-risk investor.
There’s no hard-and-fast rule when it comes to whether you should give it a go or a no-go decision for as long as there are confirmed buy signals according to your methods. There’s no universal law for that. Everything’s relative. Everything’s personal.
If you’re one of my clients, you know very well that I will quickly call your attention and stop you when I sense that you’re trying to get from my mouth the decision that should only come from you. I’m a disciplinarian. Before you get me as your mentor, make sure you’re willing to eat discipline for breakfast, lunch, and dinner.
Next, identify the percentage of risk that you can afford to apply in that stock. You need that percentage of risk in calculating your trailing stop.
A lot of novice traders think of “short-term trading” upon hearing the words “trailing stop”. You need to understand that a trailing stop can be used for both short-term trading and long-term investing.
My recommendation is for you to have a relatively bigger, but still tolerable, percentage of risk in long-term investing than in short-term trading so you don’t get wiped out of the game too early should the market breadth decide to go south for an extended period of time – just like the sentiment that CoViD-19 has brought about.
Once you’ve identified your initial trailing stop, check where the dominant range is. The dominant range consists of a price point or points that got the biggest volume and the highest number of trades.
I’m not going to discuss the 360-degree explanation of the logic and psychology that gave birth to this dominant range thing-y because I already explained it in the online stock market course of Equilyst Analytics. Subscribe to Equilyst Analytics to get an access.
Once the dominant range is identified, it’s time for you to do a test-buy.
At this point, you already have your trailing stop. It means you know at what price you need to sell should the price go south and hit your trailing stop. This is where you need discipline. Respect your trailing stop. Otherwise, what’s the point of doing all of these mathematics if you’ll only disrespect your risk management?
Now, if the share price goes higher than the your entry price, do an upward adjustment on your trailing stop. Go to the stock market library of Equilyst Analytics and visit the TOOLS tab. You’ll see my trailing stop calculator. Use it for your convenience.
Remember, there’s no downward adjustment on your trailing stop. The reason for this is so that you can preserve your capital, protect your gains (when there’s any), and prevent unbearable losses.
You’ve just read the summary of my process. The details are found in the stock market subscription service of Equilyst Analytics.
My process has no regard of Donald Trump’s tweet.
My process has no regard of the insights of other analysts.
My process has no regard of the fundamentals of the company.
My process is not for everyone because not everyone is willing to learn how I think or don’t want to think like how I think.
The first criterion before you use my services at Equilyst Analytics is that you should be consciously willing to learn to think like how I think. There should be zero resistance. Otherwise, you and I won’t sit well together. That’s why it’s important that you read the details of the stock market subscription service of Equilyst Analytics from the first letter all the way to the last punctuation mark so you’ll know how I guide and what I offer.
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