Stevie Swai
Why is it that the more I learn, the less well I do?
This question came in from one of our subscribers and when I read it, I immediately connected to it. I’m not sure about the exact answer, but I’ll give my take on it anyway. The same thing happened to me, and the feeling of despair was absolutely paralyzing to the point that I almost stopped trading.
In my particular case, I started out trading knowing zero, nothing, nada; I just planned on buying low and selling higher. And remarkably, it worked. I’d jump into a stock trending on good news. And being a newbie, when I saw even a 5% profit, I’d exit and take my profits, because making 5% on $1000 in a couple of minutes felt more than magical to me. I didn’t even think about it. I got in, got out, and had more money than I started with and it felt great. So what went wrong?
Well, what went wrong was a combination of greed and ignorance. The greed kicked in when I’d be up 35% on a stock and still not taking profits, thinking it would go even higher. Unfortunately, I was ignorant of the fact that it was right up at a resistance area and that big green volume bar was an upthrust. And I was unaware of the course of action in that very fortunate situation. Meaning, that the stock was bouncing off resistance and then the highest probability is to start taking partial or full profits. My ignorance of not even understanding what ‘resistance’ was cost me some great trades. So what did I do? I decided to ‘learn’ how to trade.
I was like many of you, searching the internet for tips and trade secrets from internet trading gurus. I learned a few things, but mostly found the information fairly lame. My attention turned to Trader Scott whom I had known for sometime, and through just simple conversations about the market, my brain was soaking up every little thing he said.
Now armed with a bit of knowledge I got back to trading, and was trading well again, until one day, I wasn’t. So what happened that time? Well, I think I knew too much if that makes sense. Suddenly my spontaneity was crippled by overthinking, to the point of not even being able to enter trades. I’d see them there just waiting for me to jump in and I’d stop myself and begin a long ‘analysis’, which most of the time only talked me out of entering the trade. I’d watch some of those stocks just start soaring without me. I wasn’t losing, just not winning, and that was even worse to me. It was devastating to say the least, leading to some bleak months searching my soul for answers.
It took me back to the time when I first start doing photography. A friend had given me a used Nikon FM 2 SLR film camera. I loved the rush I’d get behind that camera, I could hide behind it while observing the world around me, which was comforting yet scary. I knew nothing about f-stops, film speeds, focal length, nothing. I would just pick up that camera and shoot from the heart, using only intuition for the technical aspects. To this day, those pictures were some of my best work – the ones made with no knowledge of photography.
As I learned more about the technical aspects of photography, things started going awry. The exposures and lighting would be perfect, but the images started feeling staged and passionless because the technical aspects outweighed the excitement for shooting.
So what’s the solution to the problem? The solution is to find that happy balance – understand the technicals, yet shoot from the hip. But understand that the technique is only part of arriving at a finished product.
When applying this to trading, understanding support and resistance and all of the other technical tools goes a long way when you’re deciding where to enter or exit a trade. But it’s just a guideline, it’s not the word of God. And using some intuition and not overthinking may get you farther faster. Take DCIX on Friday. We talked about the shippers once again that morning in the premarket, and Scott also did a trading video about this stuff. What a freakish move that stock made. Scott pulled 35% out of DCIX on Friday – in 17 minutes, amazing. DCIX is a great example of how we should not overthink and over analyze everything we do in markets. The trend, the momentum, was up on Friday in a huge way. That is all we needed to know, And as we know by now, in an uptrend we buy reactions, nothing else matters. That is the winning approach. Period. It’s just about taking a slice of that delicious pie.
The hardest part of trading and the biggest obstacle we’ll ever encounter is actually ourselves. Nailing entry points and taking profits is a huge step forward. But more importantly, in the event you’ve made a mistake, don’t overthink it and don’t let your ego get in the way. Just get the hell out and move on to the next trade.
Great article.
Got a question on a question on upthrust”big green volume bar was an upthrust.”
The upthrust is composed of the parts the up portion and the down portion. Is it possible to recognize an upthrust in real time before the beginning of the down portion?If so, how do you go about recognizing an upthrust with incomplete information?
Markets are always about probabilities so you never know for sure about anything. An upthrust comes after the first ending action(EA). When you see the first ending action, that’s when you have to contemplate when you are going to sell. You get better with practice. You can practice this without risk through sheer observation. Even when I am not trading a stock, but I have charts up, I always try to determine the best entry point and when I would sell into an upthrust. Observation is a great practice tool.You should get to the point when you can almost feel the upthrust in the making. Yes, you can recognize it in real time before the down portion, but it is still probabilities. And as for incomplete information, that is what trading is all about, which is why it’s so hard. If we all had complete information, it would be easy and everyone would be wealthy traders.
Some reason. At-least to me is easier to recognize a bullish EA more so than bearish.
Hey Stevie can you talk more about bearish ending action in oppose to bullish?
Yes, bearish EA is harder to recognize. The reason for this is because in an uptrend there are more bottoms than tops. It’s always easier to find the bottom which is the most important thing anyway when entering a long position. So that’s really what you want to focus on. Tops in an uptrend can be evasive because just as soon as you think you see a top it often morphs from distribution into re-accummulation then heads higher. It’s rather hard to explain really and it depends on what you’re trying to achieve. What are you trading? Are you entering it for a day trade or a longer term hold. What’s the quality of the stock? Is it a more volatile low priced stock that has more zigging and zagging, presenting more tops and bottoms? I wish I could offer a black and white answer, but it’s all about probabilities and trying to nail an exact exit point can turn a good trade bad very quickly. Opportunities for taking profits can be missed by over analysis. I hope this helps. Just keep observing and sell into strength.