Every Traders and Analysts should know their Limitations!In this article, I would like to review some of my best trades in the past 2 months!
My goal is to talk about earnings and how unpredictable their outcome could be.
In the past few months, I have tried to find reliable methods to predict the price movement after the earnings!
Unfortunately, I did not find any reliable and fairly accurate method so far!
Having said that, I prefer to stay out of trades before earnings to manage the risk of exposure to big gaps!
I do this because I know it is in my favor in the long term!
For example, I opened a perfect entry at 125.5 for Qualcomm, and closed with a +7.66% gain before the earning! It popped with +12% after earnings!
Should I regret it?
My answer is NO, I am actually very proud of this trade, although I missed the bigger chunk of profits in this trade, my decision was right in Palantir and AMC case!
PLTR: trade closed with +10% in 21 days
AMC: trade closed with +26% in 4 days
Also, I prevent a catastrophe in PYPL: closing with a -2.16% loss.
But why should I be proud of my trade?
I think any trader needs to define his rules and follow the rules!
In the long term, those who do not follow their rules will have the same result, most of them will fail..!
How did I decide to not hold my positions during earning calls?
I apply one of the game theory rules!
Minimax
In game theory, minimax is a decision rule used to minimize the worst-case potential loss; in other words, a player considers all of the best opponent responses to his strategies and selects the strategy such that the opponent's best strategy gives a payoff as large as possible.
The name "minimax" comes from minimizing the loss involved when the opponent selects the strategy that gives maximum loss and is useful in analyzing the first player's decisions both when the players move sequentially and when the players move simultaneously. In the latter case, minimax may give a Nash equilibrium of the game if some additional conditions hold.
Minimax is also useful in combinatorial games, in which every position is assigned a payoff. The simplest example is assigning a "1" to a winning position and "-1" to a losing one, but as this is difficult to calculate for all but the simplest games, intermediate evaluations (specifically chosen for the game in question) are generally necessary. In this context, the goal of the first player is to maximize the evaluation of the position, and the goal of the second player is to minimize the evaluation of the position, so the minimax rule applies. This, in essence, is how computers approach games like chess and Go, though various computational improvements are possible to the "naive" implementation of minimax. (Brilliant)
Minimax has many applications:
In game theory or decision making, a tactic in which individuals attempt either to minimize their own maximum losses or to reduce the most an opponent will gain. For example, a health researcher may propose an intervention that would be the least aversive treatment for a serious disease, thereby minimizing the adverse effects patients may expect to experience as a result of the disease.
I can apply what I learned in med school to the market!
When should you use Minimax in trading?
The answer is simple:
Always..!
Actually, Minimax is the mathematical reason behind using stop loss!
I think I do not need to talk about the importance of stop-loss, I just want to mention WD Gann quote about stop loss:
"Stop loss orders are a trader's best friend."
Price Gap:
Generally speaking, stock prices experience a price gap after earnings! makes it very hard to execute your stop loss without slippage if you are on the wrong side of the trade! this slippage could harm your overall performance in long term as a trader!
Decision-making in the presence of uncertainty.
Minimax, as the name suggests, is a method in decision theory for minimizing the maximum loss. Alternatively, it can be thought of as maximizing the minimum gain, which is also known as Maximin.
It all started from a two-player zero-sum game theory, covering both the cases where players take alternate moves and those where they made simultaneous moves. It has also been extended to more complex games and to general decision-making in the presence of uncertainty.
Stock Market is a Non-zero-sum game, While options are a zero-sum game!
To wrap it up, you should use minimax when your opponent is very sophisticated and its activities are very unpredictable!
No need to say that market is very sophisticated and unpredictable!
"Why do you think the same five guys make it to the final table of the World Series of Poker EVERY YEAR? What, are they the luckiest guys in Las Vegas?"
-Mike McDermot, 'Rounders'.
Reference articles:
brilliant.org
dictionary.apa.org
uh.edu
becominghuman.ai
Uber
TUTORIAL - Finding Better Entries Finding Better Entries
Ok, y’all, I’m losing my voice a little bit… but I also just got a new microphone so that is why this video happened. So be nice about my hoarse voice.
Let me know if this is helpful and If I should do more like this
ENTRIES
PYPL - 225.30
DKNG - 43.01
CVS - 81.19
UBER - 42.97
LYFT - 48.27
ETSY - 163.08
I will most definitely be making more videos on entry targets. Leave me a comment if there's a symbol you want me to analyze in the next video. I'll try to do them every couple of days (And definitely on sunday nights)
Why Most Traders Lose Money - Here Are The Top 3 ReasonsAnyone that has been around the markets and trading for any period of time has probably heard that most traders lose money.
In fact, there’s actually an old trading adage that says:
90% of new traders will lose 90% of their account within 90 days.
So after reading that, before you reach for your broker’s phone number to wire out all of your money… how about I let you in on a little secret:
If you follow some simple rules and avoid these 3 mistakes, you can be in that minority of traders that actually make money consistently in the markets.
And if you are currently making one or all of the mistakes, I’ll also show you exactly how to fix it.
So let’s dive in!
1) Most Traders Enter A Trade Too Late
The first thing on my top 3 reasons why traders lose money is: Most traders get into trades WAY too late!
There are a lot of reasons this happens, but most commonly it’s because new traders are basically gambling. They’re buying stocks or options based on news, or a hot stock tip, which really isn’t what I would consider a strategy.
So let me give you a great example with a company I’m sure you’ve heard of: Uber Technologies (Yes, enemy #1 for taxi drivers worldwide.)
Last year Uber, known for its popular ride-sharing and food delivery services, IPO’d in May (2019).
With the disruption this company caused, their IPO had a lot of hype surrounding it, bringing a lot of investors to the table.
On the day of their IPO, UBER opened at $42/share and people poured into the stock.
For a few weeks, the stock had a turbulent, roller coaster of a ride all the way to as high as $47.08/share, a little over a 13% increase since its IPO.
And around this new high, more and more inexperienced retail traders piled in thinking that it would continue its bullish run with dollar signs in their eyes.
The mainstream media was continuing to hype it and more and more and investors and traders gobbled up more of the stock.
Looking at the image below, you’ll see after that high of $47 things got UGLY fast, with UBER falling day-after-day, week-after-week.
It wasn’t until November of 2019, about 7 months after their IPO that UBER found a temporary bottom at $25.58, down more than 45% from its high of $47.08… and I would bet there were a LOT of people who bought near or at the highs and were still holding at that point.
So what did retailer traders do when UBER made a bottom?
Yes, once again most (losing) retail traders didn’t get in at, or even around the bottom… once again, they piled as UBER neared its previous highs.
And as you’ll see yet again, UBER rolled over on its way to making another new all-time low this past March 2020 going all the way down to $13.71/share.
That’s more than a 70% decrease from its ATH and yes, I’m sure some investors rode it all the way to the bottom.
Now I want to share a second example with you, so let’s take a look at Amazon (AMZN).
So as you know, AMZN is a HOT STOCK, and last year it has a crazy move where it crossed $2000/share…. and yes, just like our example with UBER, inexperienced retail traders piled in at the very top.
Once again, in the weeks that followed, AMZN’s stock tanked leaving those who’d piled in dazed and confused, now holding onto sizable losses.
So as you can see, the first of my top 3 reasons most traders are losing money is simply because they’re piling in way too late in a stock’s move, generally near a high.
Now on to reason number 2:
2) Most Traders EXIT Too Late
Yes, as you can imagine if people are getting in too late, well, they’re also typically getting out too late as well.
So let’s talk about why this happens. Why do retail traders tend to hold onto trades way too long, either turning a small loss into a BIG loss or sometimes even more painful, turning a winner into a loser?
Let’s take a look at another example with an UBER competitor, LYFT .
Like UBER, LYFT also had its IPO in 2019, opening up at $87.24/share… but that didn’t last long.
In less than two months, LYFT went as low as $47.17… and what do you think those who bought during the IPO are saying right about now:
“Oh, I’m holding it because IT WILL TURN AROUND!”
This is generally where I see traders get religious 😉
Instead of ‘taking their medicine’ and getting out when the trade moved against them, they held on and are now pleading and praying the stock will turn around.
I hate to be the one to break it to you, but ‘hope’ is not a strategy… at least not one with a winning trading record.
Now on to number three in our list of top reasons why most traders lose money:
3) They Don’t Have A Trading Strategy
As you’ll see, I’ve saved the best for last as this one alone can help fix or eliminate the other two we just discussed.
So first, let’s answer this question: What Is A Trading Strategy?
Well, a trading strategy gives you three key pieces of information you need before ever entering a trade:
1) It tells you WHAT you are trading. Is it stocks, options, futures, cryptocurrencies? This is answered in your trading strategy.
2) It answers when you ENTER a trade.
3) It answers when you EXIT a trade and that’s exiting with a profit or loss.
Now, let’s take a look at an example here using TSLA on how I make decisions trading.
I like to look at three different indicators, that when in alignment, give me a clear signal to go long or short a stock or ETF.
As you can see on the charts, back in December of last year (2019) my indicators gave us a long signal on TSLA at around $370/share.
TSLA Chart
And the indicators told me we were good to go until around $850/share. All I had to do is let the indicators tell me when to get in and when to get out… no guessing, hoping, or praying.
Summary
So as you can see, there’s actually no big secret to why most traders are losing money.
It’s actually pretty simple to see and correct, but it takes a plan and a little bit of discipline.
