STOCK HACKS
Three Skills That Will Make You A Better Investor
They might not be what you’d come to expect from an article about investment advice. Yet, these are the skills that aren’t talked about enough — the ones you learn out in the field.
The stock market is like a convicted felon. No matter how much it changes, or what it does in the future, it’s past offenses keep coming up. — Steven Tyler
Introduction
I won’t bore you with a Dotcom Bubble reference or the Dutch Tulip Bulb analogy — in fact, I’m not going to use any bubble analogies. They’ve been used to the point of exhaustion on Medium recently, and to be frank, I’m tired of reading them.
It’s easy to reference past disasters and stir up emotions of fear in people, then offer some basic advice that we’ve all heard a thousand times. That’s not going to help someone learn to be more effective at trading stocks.
I’m not here to judge people or claim that I’m the Oracle of Omaha. All I’m saying is that instead of writing articles that feed into the insecurities people have towards the market, I like to ask myself:
“Why are people searching for this topic in the first place?”
The best way that I know how to answer that question is by relating my own experiences. I prefer it this way for a reason.
Trading stocks and making investment decisions rely on more than just what you learn in a book or from taking an online course.
While these help you learn the fundamentals of trading, for me, the things that mattered the most, such as knowing what trades to make, or how to deal with being stuck in an inconvenient position, weren’t lessons learned from a book or course.
I learned from other traders’ experiences. I read their accounts of trades they made, a lot like the ones you’ll find here on Medium.
It isn’t that I’m suggesting you don’t take formal courses or study.
I think of it as like a doctor getting a Ph.D. after ten years of schooling, only to get hired at a hospital and realize that many of the things they learned are rarely used.
Learning some things only comes from experience and learning from others who have been doing it longer than you. The same applies to learning how to invest in stocks. To fully understand the market, one needs to experience it first hand.
In the end, I found three concepts helpful. To be honest, once I truly understood them I was baffled by the simplicity of it.
Nonetheless, understanding these things made a huge difference in my trading career:
- Control Your Emotions
- Use Google
- Act Accordingly
They may seem simple at first glance, but underneath that simplicity lies raw power, and they’re waiting for you to tap into it.
I cannot guarantee that you will make money investing, no one can. You should be skeptical of any Facebook advert that claims to have some secret indicator, guaranteed to give you an 80% win-to-loss ratio.
I can confirm that the things I discuss in this article have allowed me to be self-sufficient, to sustain myself and my family on the income generated by trading.
You may also find success.
Tip #1 → Act Accordingly
Since I was a child, I have always been fascinated by movies.
It sounds random now, but I promise you, it will soon make sense.
Quotes and famous one-liners have always been my favorite parts. They can be witty and dark, humorous or depressing, but they’re always profound. No matter what kind of movie it is or who says the quote: They are packed with wisdom if you learn to listen.
A favorite quote of mine is from Jack Nicholson in The Departed, who plays the role of Irish mobster Frank Costello. It happens during a nonchalant, low-key bar scene that plays out as Costello walks into his bar and has a brief exchange with one of the patrons.
As the scene opens, Costello greets an associate at his bar and inquires about his mother.
The man sadly responds that she’s “on her way out.”
With a smile, Costello remarks, “We all are. Act accordingly.”
Quote by: Frank Costello — [Played by Jack Nicholson in The Departed]
It was always the market that was to blame for my losses. I didn’t take responsibility and I always had a rational explanation for my failures.
If the stock market acted accordingly, I wouldn’t have lost money on so many trades!
The fact that I invested money in Zoom after a massive, 5-day spike in price couldn’t have had anything to do with the loss. . .
If people would just act accordingly, then we would all have what we want. As wonderful as that sounds, the world would probably end up being a terrible place to live.
Case in point: Tim, my friend from High School, would have been an A-list actor by now if only casting directors had acted accordingly and given him the role.
Even though I love Tim, he was an awful actor. Having him become the action movie star of the 2000s instead of Tom Cruise would have caused the world, specifically the cinema, to be an altogether darker place.
Assume that the market will never behave the way you expect it to (at least in the short term) and make your plans accordingly.
Markets are unpredictable, but that doesn’t mean you have to be, too. If you apply the right solution to the right problem, you can turn a liability into an asset.
It all starts with laying a firm foundation upon which to build. Here’s my version.
What I used to build my foundation
1.) The unpredictable nature of the stock market is also its most predictable attribute.
2) Nobody can predict with reliable accuracy where the market will move tomorrow.
3.) Stop trying to figure out where it’s going, instead look back and see where it’s been.
The history of the stock market is one of the most reliable indicators we have. Short term, saying whether a stock will move up or down is mostly a crapshoot.
However, over the long run, the market is highly efficient.
You can see this efficiency in the chart below of the DJIA
You may lose a little money on your first trade or two, but remember that the DJIA has been consistently moving up for over 100 years, (with a few bumps along the way), and it isn’t about to stop anytime soon.
Occasionally, the world will panic for no apparent reason. Clip after clip will be played on the news networks, making panic selling even worse.
Don’t fall victim to the herd mentality!
Don’t forget that the market is efficient, and it will last much longer than you. When times get tough, you need to stay centered and not panic.
When you are strong enough to outlast the herd, to stand aside as they gallop past following a leader they never met, then you will be okay.
The Stock Market has always provided a way for people to make money.
Therefore, be patient, tighten your bootstraps, and act accordingly!
Tip #2 → Use Google — the most powerful tool a trader has
Among all the advanced trading software available in 2021, Google is by far the most effective (especially in the search engine sphere). First off, it’s a link that gives us access to every other tool. If we need a bit of software or want to use a particular indicator on our chart, the odds are you will find it on the internet.
Although occasionally you will have to pay money to gain access, it is there.
Second, it contains all the information needed to accomplish your goal. If you want to learn a new skill badly enough and are disciplined enough to dedicate hours to it every day, that goal can be achieved with the internet.
However. . .
Everyone is aware that the internet has the innate ability to turn every Joe/Jill into an expert in the field of Blockchain within a matter of weeks.
Instead, I’ll tell you about something you need to avoid when using this powerful tool called Google.
2020 and the rise of fake gurus
You are probably aware there are a lot of Gurus out there claiming to have the secrets to success. It doesn’t matter if it’s success in the stock market or selling coffee cups on Amazon, there’s bound to be endless listicles all over the internet for you to “learn” how to do it.
My eyes are tired of those listicles and meaningless motivational speeches. There have been times that I have clicked on one because the title stated something like “How to make winning trades using this secret indicator!”.”
In the end, they just tell us to work hard (in different ways each time). . .
- Make the effort rather than expecting success to come to you!
- Buy ETFs!
- Be sure to diversify your portfolio and carry out your own due diligence before making any investment decisions.
They’re just repeating what you can see in the meta-data of articles that appear in a Google search using terms such as “stock market” or “day trading”. This all started way before 2020, but now it’s 2021 and we’ve waited too long.
They have dominated the internet in numbers that only cicadas can match.
There’s another issue with Gurus though — after 3–4 weeks of tormenting us with noise, gossip, and chaos, the Gurus don’t burrow back into the Earth and wait another 17 years to come out!
Gurus are here to stay, and we’ll just have to learn to live with them.
Okay, so that was a pretty depressing way to end this section, so I’ll leave you with some words of wisdom I heard a few years ago.
As more technical analysis strategies, tools, and techniques become widely adopted, these have a material impact on the price action.
For example, are those three black crows forming because the priced-in information is justifying a bearish reversal or because traders universally agree that they should be followed by a bearish reversal and bring that about by taking up short positions?
Although this is an interesting question, a true technical analyst doesn’t actually care as long as the trading model continues to work. — Investopedia
Well put my friend, whoever you are. . .
In essence, the author of that passage is saying that the indicators we use every day to look for signals to buy or sell are illusory. In some ways, it makes sense.
I’m wondering, for example, do Boeing’s top directors meet every morning in their conference room and say:
We’re approaching VWAP with our stock price. Despite our best efforts, if the price dips below that line, some of you may have to be furloughed.”
No, of course not, that would be crazy!
Consider it this way. The MACD is well known to everyone. There are enough traders using it so that the signals it produces are relevant. As so many people look for crossovers or divergences in the MACD on their charts, when they occur they tend to buy or sell based on which one occurs.
In a way, it’s a self-fulfilling prophecy. The point I’m trying to make is that indicators do work — just differently than most people think.
Imagine if I created my own indicator tomorrow, without incorporating any attributes of one that exists today, without telling anyone about it. . .
It would be useless because I would be the only person watching for buy/sell signals it produced.
Which lesson can be learned from this story?
Indicators may be an illusion, (I’m not claiming this is a fact — it just makes sense to me and what I believe) but they certainly work.
As long as everybody else believes in them, then you should, too.
Tip #3 → Control your emotions
Controlling your emotions is perhaps the most important aspect of a successful trade. We’ve all done stupid things because we let our emotions get the best of us. It’s human nature, unavoidable. With training though, you can diminish the power it has over your decision-making ability.
I go into more detail in an earlier article I wrote, solely dedicated to the impact of emotional trading and how to better manage it.
For this article, I’ll share with you the experience I had which taught me the importance of emotional awareness when trading stocks. . .
It’s 6:30 in the morning — Monday. (Pacific time — Yet another reason to control my emotions)
My heart is pounding as the market just opened. Nervous as hell, I place a limit order for the stock and the adrenaline hits me instantly — all nervousness fades away now that the plan is in action.
It’s too late to turn back, the possibility of making money was too enticing to let it slip by.
It’s just a waiting game now to see if the order is filled.
— It was filled immediately. . .
“In retrospect, it wasn’t surprising since it was only for 30 shares of a $6 stock. But still, the trade getting filled brought on another rush of emotions.”
Thank goodness I had the trading plan and my notebook right there for guidance. Over the past week I continuously monitored the stock, preparing for this opportunity.
I finished the trading plan last night, thinking of every possible outcome and making sure there were failsafes set up in case something went wrong.
A strict entry price, stop loss, and take profit level were all part of my strategy. Upon opening, I knew this would spike, but after 30–45 minutes of trading, I knew it would tank.It was easy for me to prepare — I knew what to do!
Except that. . . It didn’t tank.
Strangely, it kept going higher.
I saw strong volume, good candles on the chart, and the stock looked like it was going to soar far beyond what I had planned for. The RSI and MACD both looked great, (on a one-minute time frame — I was still new), so I decided to alter the plan and stay in the trade, ignoring the take profit level I set.
If it tanks, I told myself, then I’ll sell.
Hell, I’m already 20 points past my original target anyway, what could go wrong?
The trade went south, as I am sure you have guessed.
This all stems from my inability to stick to a plan in place of letting emotions guide my decisions. Due to my greed, an entire week’s worth of preparation was thrown out.
All I saw was the potential for more money, completely forgetting the fact that I knew this was a ‘Pump n Dump’ from the beginning.
This was a textbook “Parabolic Stock” situation, easy to manage if you know it’s happening and you stick to the plan. But I didn’t in that trade and I paid the price for it.
If you want to avoid making the same mistakes that I made in my early days of trading, learn to push those emotions to the side when it comes to your investments.
And remember, emotional control isn’t just for when a trade is going wrong, it also applies when everything is going well. No matter how a trade is going at the moment, it can turn around just as quickly.
Remember what you are, why you spent those days, months, even years, preparing. You didn’t put all that work in just to act like everyone else and follow the herd!
You’re concise, deliberate, and a winner. No matter what’s going on in the markets or what people are jabbering about on social media, you’ll keep your head clear and find the advantage of any situation.
We all accept that there’s an inherent risk of loss by investing, so, at times we have to cut off the infected hand to save the arm.
That’s the first real lesson that I can pass onto anyone new to this. Don’t beat yourself up for making a bad decision or losing money on a trade, we all have from time to time. Just make sure you learn something from it and don’t make a habit out of a bad decision.
Likely, the event that came along and fu@#ed things up for you was out of your control anyway.
But, what is in your control is how you react to it. You need to be able to tune out your emotions like a straight-up sociopath.
I’m not saying you need to turn into The Son of Sam or some sicko, but you do need to regulate your emotions from the time that opening bell rings until the market closes.
Even Warren Buffett has made horrible investment decisions. Just take a look at last year. . .
However, it’s not the loss that defines you, it’s your reaction to the loss that determines if you’re a good investor or a great investor.
I hope you enjoyed this article, but please remember that investing is a serious matter, never to be taken lightly. I’m writing about my personal experiences, and this is not to be interpreted as investment advice. You should always consult a licensed financial advisor before making any decisions.
