Palpara Merchants

Over the years I’ve gone from a hobbyist market enthusiast to a semi-professional speculator (meaning I still rely on other people’s money to trade). The one thing I realize now is the most important and would have gotten me much further had I known it earlier is stops. Stops are one aspect of risk management I focus on. The others are sector exposure and overall in the market.

I used to focus completely on overall dollars in the market, and it got me nowhere. This is a strategy that minimizes loss, not maximizes gains or finds something in between. When you manage money not to loose it, that is your best case outcome- you don’t loose anything.

So I got a lot further when I realized that stops will mean your risk is the amount of the stop. I don’t really truly believe this because my belief is that the market is just a game and the banks are the house. They will shut the game down as soon as they are at risk of losing, and stops don’t matter if the market is closed for several months.

Because of my belief that it’s just a game that has always been rigged to some degree since the beginning, I have to use total dollars invested as a limiting factor. This is hard to describe because I have yet to come up with a defined rule for putting money to work in tiers up and down- a scaling in and out. This is more instinctual, and I have to listen to when I think I won’t have a another chance to buy a stock because it is the lowest it will be for the next year or two.

It’s a numbers game: your system should be good enough to have room for big wins, and cut many smaller losers/stop many break evens/ stop many small winners. The hardest part of professional speculation is waiting around for the big trends to develop that make the most money over time. This is the part that takes up the most work- planning, preparation, analyzing, and sitting around and waiting. These trends are usually sectors where all the stocks trend higher with several leaders that go up more with less severe pullbacks.

Figuring out your system is a personal process of trial and error. It’s the most confusing part of speculation. Everyone trades differently, and all beginners/ hobbyist traders fall into the trap of the “guru.” Eliminating news letters and alert services after a year is the best way to get into your own system.

My system consists of either a technical scan or a fundamental scan and working the other way. So if I start with a technical screen, then I move on to the fundamentals- usually growth if I start with technicals. So I am just looking for stocks in a wedge break out or a touchdown at support in an uptrend. It’s best if all moving averages are stacked one on top of the other, but sometimes a stock from a base where the 50dma crosses above the 200dma, then the stock stays above the 200dma while the 50dma trends higher is a good start of a long term trend higher. If fundamentals is the starting point, it will either be a value or growth screen. Value stocks will likely be in a down trend, so I wait for a technical signal that the stock is moving higher before buying. This takes longer because you get lots of clues/ false signals that don’t work right away. There is lots of buying and stopping out for these stocks. The ones that don’t get stopped out right away are the good trades. It is tough to hold on to these long enough to get all the move. I never get all the snap back move from a value stock. I get into a lot of snap back moves on these but I haven’t quite gotten a consistent process for getting more 50% of the move. On growth screen, the stock has to be in an uptrend or base. Bill O’Neil has the best criteria for bases and growth screen so I just approximately use his criteria for both the growth and basing patterns. Then once I have found my candidates from the screen, I plan out what I need to see in order to buy: either a touchdown at support, or break out from a wedge and these two patterns are really the only things my system consistently gets right (other patterns like H&S or flag break outs or volatility squeezes just don’t seem to be consistent for me because placing relevant stops on these patters is harder for me). Stops are crucial after I identify my pattern because I am really just speculating that the pattern I know will play out. If it starts to not work, I have to just let it go. Being automatic about trading takes out the emotion and makes losing and winning easier.

I find that basically every time I arbitrarily move my stop up or decide to sell based on something other than price action (usually narrative surrounding a stock or sector) I will sell what could have been a good, quick win that puts thousands of points on my P&L. So in other words, not being automatic costs me lots of points. And on the few times selling prematurely because I don’t like the way a stock is acting prevents me from taking a little more of a loss, the amount saved is not worth the amount on which is missed to justify using gut feel as a strategy for stops. I am convinced that a good, relevant stop would be far better.

The game of speculation is hard. Striving to play this game full time is almost an impossible task. Most will fail, and in most cases to fail is not to blow up your account, but rather, to give up and to continue doing what you have been doing this whole time (you know, your real job…).

Those that are inclined to keep going will generally find some measure of success. Hopefully, this measure will be enough to afford a standard of living that meets all your material needs with only a tiny bit of worry about the future (one is not a prudent human being if one has absolutely no worry about what the future holds).

So here are some principles I like to remind myself:

• Be in what is going up
• Ride winners
• Avoid what is going down
• Cut losers
• Do your own work
• Don’t let negativity pervade your thinking
• Market trend is always driven by liquidity
• The rules of the game are always changing
• To make money you must hold with conviction
• Conviction is a luxury for those on the sidelines
• Always have an exit before you enter
• Only a couple of stocks/ sectors make all the money in bull runs- be in those
• No certainty that a fact you just learned is not already priced in
• Price doesn’t care what you just learned
• You are hard wired for survival, not trading successfully
• Think only about the trade at hand, not making or losing money
• Markets are bigger than anyone- manipulation doesn’t matter

Some of these (especially “ride winners/ cut losers”) sound so simple that they can be taken for granted, but if you actually take the time to reflect on your own actions in the marketplace and all the stuff you have in your head that you have learned over the years and try to apply those little experiences to living these principles, you will see they are anything but obvious.

The only way to have a noble profession,

Is to have skin in the game,

Form ideas,

See if you are correct,

By betting money on them.

This is the only way to see if you are actually as smart as you want people to believe you are…

And by not making a bet, you are in fact choosing to make a “negative bet”

So in effect you are betting that there is no money to be made now…

And you can’t follow anyone in the predicting business.

You should get to know how they see the market,

But you can’t adopt their religion.

When it comes down to anything human,

You have got to experience it for yourself

And form your own beliefs.

That is the only way.

And to really know you are doing what you think and you are right,

You have to bet large.

This way you will have conviction in the idea,

Cause it will be yours.

You know you can stick it out if it is yours.

It is only yours if you form enough reasoned conviction that it is a good idea with a high payoff.

no one knows what paradigm gold should trade from right now.
know one that says im told: “pay up or trade us your labor for USD”
and i hear from kris that the dollar will strengthen some how,
rates soar while prices roar down some more and it’s taken it outta me
to find out which avatar to follow…

i stil get index quotes over the air,
the exact same service that sent signal to ticker tape machines,
NYSE quotes still out there…
it’s all a simulation would you believe???

First time investors always make the same mistakes. If you can avoid these, you are a step ahead:

• create unrealistic expectations for growth- you can expect to grow your investment at about 7% per year. That means with compunding, you can expect your money to double every 10 years. So if you invest $100, you will have $107 after a year and $200 after 10 years.

• think some tiny stock a friend tells you about is going to make you a ton of money- it is very unlikely any stock you pick is going to make you more than the S&P 500 over 10 years. Don’t delude yourself into thinking investing is as easy as hearing about a company that will grow and simply holding the stock. It doesn’t work like that.

• listen to “talking heads”- guys on the TV are trying to sell you something, not help you become wealthy. In every case, without exception, they are trying to get your money. They want to sell you a subscription, a service, a book, whatever. Don’t follow their “advice.” You will be more stressed and no richer after having followed it.

Avoid these mistakes. Most beginners won’t, and they will not be investors for long. Investing is a long game. You win when you stop working long before your friends and dont worry about covering living expenses.

If you are young, have some extra cash, and you are inclined to save it for several years or more, chances are you have thought about investing in the stock market. Chances are also that you don’t know how you should start…

The first thing any younger person should do is get a feel for investing buy opening a brokerage account (Schwab and TD Ameritrade have the best customer support over the phone if you need to talk to a real person) and then transfer your money in from a bank checking or savings account.

Then, the best way to get started with any dollar amount under $10,000 is to buy a low cost S&P 500 ETF. If you don’t know the difference between and ETF and a mutual fund, you have more learning to do and may not be suited for investing. the SPDR’s and Vanguard ETF’s are the most widely traded and reputable. The tickers are SPY and VOO for the SPDR’s and Vanguard respectively. Schwab also has an ETF that if free to trade (i.e. there are no commissions if you trade on the Schwab platform) under the ticker SCHB. These are all good options and will perform virtually identical to the S&P 500 index (most people use the S&P 500 as THE gauge for the US stock market as it is a good representation of the US economy (the Dow Jones Industrial Average has only 30 stocks and while a traditional index, it is no longer an industrial index and has, over time, come to include a broader representation of industries; but is still limited to 30 stocks).

After you have accumulated about $10,000 in an S&P 500 low cost index ETF, you are ready to start building a portfolio of small positions in individual stocks. Five stocks is a the least you can have to build a diversified portfolio, and the least amount you can actually spend the time to research.

If you are ready to move to this step, click the link to follow shortly.

The first thing most financial advisors will tell young people is to open an IRA and make the max contributions to it every year. However, this is not good advice for young people that are inclined to start a business or invest in a real company. If the opportunity arrises to invest in a private company and all your savings are in an IRA, you won’t be able to get to your savings without paying a 10% penalty plus taxes.

IRA’s are a great way for most ordinary people to save for an ordinary life, but IRA’s can also be a trap for those seeking the extraordinary…

I’ve never followed NFL football so the guys that make it to the news are all unfamilar to me. Like that guy that did corporal punishment to his son or the guy that knocked out his wife on an elevator, or the guy who had knowledge of deflation going on, or this latest one- the guy who decided not to stand for the singing of the Anthem…

The societal problem Colin Kaepernick wants to relay to people is one that doesn’t factor into some people’s mental construction- how their brain creates their own reality at each and every second.

Indeed, many people I know haven’t enough intellectual computing power to understand other people’s perspective, let alone interpret reality properly. I dont think you can interpret reality properly any more unless you are actively reading opinions on twitter, but soley getting twitter “news” can lead to extreme distortions in your thinking.

That is the problem- everyone is just living in their own reality due to news and propeganda. I can’t tell what is what anymore. I know people who don’t even understand that at least some news in the paper and more so on tv is almost as bad as soviet propaganda.

Social media is strange in that it lets you see other peope’s vision of reality for themselves. You can see those who worships sports, those who worship nature, those who worship money, and those who venerate the angels and saints.

The question I wonder about the most is who’s reality is right?

In some people’s reality, the world is so dire that Trump is the right guy- fit to come in and blow up the whole, rigged system. In some other realities, HRC’s only downside is her moral flaws that are no worse than other presidents. We won’t know which reality is right until after it happens.

Some people don’t think the Son of Man will return… Is their reality the correct one? If they are ultimately proven wrong, should we have any reason to trust their judgement on any matter if they could be so wrong about the reality we all live in?

What is the real reality we face? Until the end of time, we create our own realities (if you just can’t wait until the end of time to experience the Redemer, there is a VR movie from the same producer and religious advisor as Mel Gibson’s Passion to experience the Lord in 3D)…

So which reality will we make? Change everything by demolishing everything, or cling to the staus quo because another reality is unthinkiable and far worse than the status quo (wayward as the status quo is, is it still more acceptable than the unkown)? How do we get a choice in between both extremes? How can we create that reality- this is what everyone wonders to themselves…