You know what I love about trading? Every day is a chance to start fresh. It doesn’t matter what happened yesterday or last week.
We’re all allowed to hit the reset button and start with a clean slate.
That’s why even though Friday was the second-worst trading day of my career, I’m focused and ready to start fresh on Monday.
Don’t get me wrong, I plan to learn from my mistakes.
And I’m sure Weekly Money Multiplier members are excited to see me pull off more trades like this one in Stamps.com (STMP)…
You win some and you lose some. That’s trading!
You can’t keep a good Bear down! So let’s turn the page and begin a new chapter. Commit to making better decisions and become better traders.
That all begins with these three stocks to get us started off on the right foot.
A lot of stocks took a beating last week. When you look through how all of them performed, a few stood out from the rest.
Twillio looked like they were headed lower after reporting earnings this quarter. Then buyers stepped in, smacking sellers in the face. As markets made their last push, Twilio went along for the ride.
Looking at the daily chart, I like what I see and think this stock has what it takes to weather the storm.
TWLO Daily Chart
Despite the negative momentum on the stock, I like the look of this setup. The chart has all the elements of my TPS setup.
Price certainly whipped around a lot recently. Yet, it’s still creating a noticeable consolidation. Although the stock moved into my buy zone between the 8-period exponential moving average and the 21-period exponential moving average, I would rather take it closer to the lower Bollinger Band.
Given the heavy market selloff last week, I want to approach this trade with more caution. That means reducing my size, scaling into the trade while saving more ammo for the conservative entries.
Brick and mortar retail stores haven’t fared well in recent years. Look across the strip malls and you’ll find plenty about bankruptcies and store closings. However, some niche retailers manage to display remarkable growth.
Five Below had been trending lower for most of 2019. On January 13th, the stock got whacked on high volume. Buyers came in waves creating a clear reversal candle. Since then, the stock floated higher and now has entered a consolidation phase.
Let’s take a look at the daily chart.
FIVE Daily Chart
You can see the big push off the bottom of the stock made into the current consolidation pattern. Since then, price has traded in a range that keeps contracting. Notice how the squeeze indicator not only confirms this, but also points out momentum shifting to the up-side.
This TPS setup looks rather interesting. With the stock already signaling strength, it could break out even in a falling market. I also like this play since it isn’t highly correlated to the broader indexes.
That said I’d love to grab this down near the lower Bollinger Band for a conservative entry. Then, if the stock closed below the yellow bottom trendline, I could exit the trade for a small loss.
Traders and investors have taken a wild ride in Beyond Meat this past year. The stock doubled in value, crashed, and then ripped higher, all within a 12-month time. That’s a lot of opportunities for those of us who timed it right.
When I look at the chart now, I see a fantastic opportunity to work a TPS setup.
BYND Daily Chart
I don’t like fake meat, but this chart makes my mouth water. Price shot off the bottom after forming a base for several months. We’ve seen it trade in a range that continues to contract. Now that we’ve got a squeeze going, things look ready to move.
The stock has lost a lot of its short float, now only sitting at 18%. However, I think that if the TPS setup plays out and breaks the recent highs, you could see a vacuum that pulls the stock higher quickly.
Regardless of whether these trades work out or not, I know that the texture of stocks changed. We’re seeing volatility creep back in, ending the perpetual uptrend.
I plan to adjust my position sizing as well as how I manage my entries and exits. You can bet I’ll be using my trade journal to review my plans and make sure that I stay on track.
These techniques are the same ones that I used to turn $38,000 into $2,000,000 in just two years. You can apply them to your trading as well.
In my upcoming trading workshop, I will explain what led me to these particular tools and how you can use them to become a better trader right now.
The market finds ways to humble us all at one time or another.
Apparently, yesterday was that day for me…
I ended up cutting my losses at $37,000—the second-largest losing day of my career.
I didn’t do anything unusual, in fact, they were positions that I had on, that never materialized.
In hindsight, I had too many positions on.
Whenever we have money on the line, our emotions will find a way to get involved… I kid you not, during a live session on Thursday I caught myself breathing hard with sweaty palms…ME!
That should have been a warning. Instead, I plowed forward with my longs, setting myself up for a horrible Friday.
Now, the way I get over a loss like this is by reviewing and analyzing my actions. Not only is it therapeutic but it will help me regain my focus and confidence.
This is your chance to learn from my mistake so it doesn’t happen to you.
Crashes happen when no one expects them, not when you do. The bears beat the drum for the last decade in spite of the longest bull market in history. With an untested easy money policy, the Fed forced money into equities, whether it wanted to go there or not.
Why fight the trend? It worked for the last decade. Who am I to call a top or bottom? I kept telling myself that I never made money that way and wasn’t about to start now.
Most of us forget the massive corrections that peppered the last decade!
This became my crutch and then my foundation. My deliberateness turned into pure arrogance. Even though I know the market can swing hard, I figured I’d know ahead of time and pull my money out like I had the last few months.
A friend of mine literally blew up his small account on Thursday for the same reason. He assumed that he would know when to stop out as he had for the last two months. With a 90%+ win-rate, it seemed obvious to him.
He and I both shared the same fate. We forgot that even in perpetual bull markets, weird things happen you can’t plan for. Where did we go wrong?
We assumed we could manage better than our strategy.
For him, that meant forgetting to actually use stops. In my case, I carried way too many positions and way too much leverage to the upside. Then, when I had a signal to dump on Thursday, I ignored it.
Trading is a business and deserves all the seriousness that entails. Large companies hold weekly, monthly, quarterly, and annual reviews. They set up rigorous processes and checks along the way to ensure they don’t spin out of control.
We must do the same thing. Most of us call it going ‘back to basics.’ What we really mean is making sure we don’t wrap ourselves up in the trades to the point that we ignore our strategies.
Strategies keep us grounded. They statistically prove how to make money in the market (or at least should). No one should deviate or change from their strategy unless it is a deliberate, thought out test.
The number one component of every strategy – RISK MANAGEMENT!
Bad beats will happen, that’s just inevitable. When they occur outside of what’s expected, that means you did something wrong.
My first mistake – I failed to notice my heavy-handedness for bullish positions.
My second mistake – Ignoring warnings that my strategy and training signaled.
Trading by yourself can be a blessing. It can also be a curse. People use one another to check each other in an office setting. Work-from-home traders rely entirely upon themselves outside of group chats.
Now that I know what happened and why it’s time to make it count. Don’t let a bad beat go to waste. Learn something from it!
Here’s a simple plan to help me correct my issues.
This isn’t an elaborate plan, nor is it overly dramatic. It’s incremental as it should be. The idea isn’t to change everything around. It’s to LEARN from the mistakes and correct them. Nothing more, nothing less.
All of this assumes you start with a trading plan. They should guide your decision making and trading every day.
I know not everyone has one. I certainly didn’t for a long time. But if you want to become a successful trader, you need one.
You can learn how I created my trading plan for my upcoming webinar. I explain how I went from flailing about to becoming a serious trader.
Newsflash – it didn’t happen overnight.
It’s much less painful to learn from other’s mistakes than to create your own – trust me. Learning just one thing could save you a lot of money in the long-run.
Avid readers know I’m a huge fan of trading journals. Not only do they help you become a better trader, but they can highlight opportunities you didn’t even know existed.
It happened to me just the other day. Sipping my coffee one morning, I examined my trades for the past few months. After a few minutes, an idea came into focus…
A little TPS sprinkled with a put credit spread delivered the winning combination!
Earlier this week, I sent Weekly Money Multiplier members the following chart.
PG Daily Chart
It may not look like much to you. But to me, this is pure gold. I see a TPS setup that formed with an excellent entry right off the lower Bollinger Band.
You’re probably scratching your head, wondering what the heck I’m looking at.
Let me explain how I identified this trade and why it works.
Even a few members of Weekly Money Multiplier saw this chart and weren’t entirely sure about how it fits into my TPS strategy. So let me walk you through what I see.
First, let’s mark up the chart a little bit.
PG Daily Chart
For starters, I don’t think anyone would argue the stock is in an uptrend. Proctor & Gamble pushed higher through all of 2019. So we’re all in agreement here.
Next, it’s obvious that the speed of that trend slowed around October. Check out where the stock took a dip before finding support. That recovery has been drawn out for the last few months in a slow grind higher.
Now, you’ll notice at the bottom I highlighted where a squeeze started. This happens when the Bollinger Bands begin trading inside of the Keltner Channel indicator. In my experience, that leads to explosive price moves (not that I need one for this trade to work out).
Lastly, I want to point out the wedge chart pattern. While this isn’t the cleanest pattern I’ve come across, it’s good enough for what I’m looking for.
I recently wrote an article about how I use Bollinger Bands in my trading. For those of you who haven’t read it, let me give you a quick recap.
Bollinger Bands create a range of two standard deviations based on a rolling timeframe of closes. Two standard deviations mean that based on the historical closes, there’s a 95% chance the close should land in that range. So, when any chart hits the upper or lower band, that’s a great signal it’s overextended itself.
Typically, I’m looking to enter trades between the 8-period exponential moving average and the 21-period exponential moving average. Entering at the lower Bollinger Band is a more conservative play.
When I get a stock like P&G that doesn’t move a ton and continues to grind higher, I don’t want to just buy call options. They won’t pay me out enough. Instead, I can use that bullishness to work for me. That’s why I like the put credit spread.
A put credit spread involves selling one put option at a strike below the current price and buying another at a lower strike price, both for the same expiration. You receive a credit for this transaction known at the premium. The maximum amount of profit possible is the credit you receive up front. If the stock is above the strikes at expiration, you keep it all. Your maximum possible loss is the distance between the strikes, minus the credit you receive.
Note, you can exit the spread early if you want at a partial profit. This can actually lead to a higher win-rate!
Here’s what makes this trade a really high probability. First, option sellers have a statistical advantage over buyers. That’s inherent within the options market.
Second, I’m playing this credit spread when I have a signal that the stock is oversold both on the chart and statistically speaking. That gives it a higher likelihood of not heading lower.
Lastly, I combine my TPS setup, which normally leads to explosive moves higher. When I put all these pieces together, I have an excellent chance that this trade works out in my favor.
You can learn exactly how I read through my journal to come up with trades just like these. I talk about it extensively in my upcoming webinar you can join for free.