Friday, February 20, 2009

The Patiently Trained Psychological Eye is Open to Educational TV

{The Seven Psychological Pillars to Profits}

{1} We believe in patience. A patient trader waits for superior opportunities to enter and exit. A trader who forces trades after winning or losing will set himself up for avoidable losses. Do not allow a gamblers' mentality to take control of your behavior. Not trading for a couple days will clear your mind and reward you more often than not.

{2} We believe in trading higher priced liquid stocks. They tend to have much smaller option spreads and to exhibit greater volatility, and volatility is the key to making money. Volatility in these higher priced stocks like CME or GOOG can be caused by stock specific news related to conference calls, executive presentations, earnings releases, management changes, law suits, technology/patents, sector news, and short interest. Volatility is also caused by the overall market/S&P. Take advantage of that S&P volatility by setting specific entry and exit points based on support & resistance lines.

{3} We believe in only trading above average entry points.

{4} We believe the market will be around next Friday, next month, and next year (with the new anti Wall Street populism, this theory is being tested). Yet we take at least one day a week off in order to clear our minds. Cultivate a hobby because a healthy life style contributes to a healthier mind and thus better risk:reward set-ups. Better trading decisions result when we are well rested and involved in other things besides trading. Go fishing, go antiquing, visit a museum, plant a vegetable garden, do anything other than thinking about the markets (yes, we are serious; try it!).

{5} We believe investor sentiment/psychology and S&P swings affect individual stock movements in the short run more than any fundamental metric or ratio. Exhibit caution when attempting to trade on backward looking fundamental analysis and supposed forward-looking analyst estimates, as they are usually too optimistic due to the misleading PR spin of many firms. It makes more sense to go long after a stock has been downgraded than upgraded, as institutions have vested interests in their recommendations. It also makes more sense to go long a stock that has lowered their guidance than raised, especially if it's above its 200 day moving average.

{6} We believe there is only one Warren Buffet (and even his buy & hold prowess is being questioned in '09). Buy & hold is not recommended in today's market. You must master market mechanics through what we call Psychological Financial Fusion and you will become a very successful trader by understanding how fundamentals, technicals, politics, and psychology are intertwined and work to whipsaw long & short positions from day to day.

{7} We acknowledge the importance of always maintaining a minimum 30% cash balance in your account, and recommend booking profits of 30% or more (especially on Friday). Wise traders shrink into the weekend to avoid the risk of negative/positive geo-political events/shocks.

The Psychology of the Call team wishes all a happy & healthy weekend!

1 comment:

Anonymous said...

Thanks you for the link fellas, have been looking for online education on options since last week! Very weird you posted that article and link.