Trading with Focus – So you copped a flogging…
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Yeah, sex is cool but have you ever traded your way out of a loss?
Tom Hardy would have to be in my Top 3 favourite actors. I have no idea who else is on that list, but I guarantee you that Christian Bale and Denzel Washington are my bottom two.
Why? Because they aren’t actors, they just play themselves in different outfits/weight categories in great movies. (Definitely in great movies though).
Tom Hardy was Bane, he didn’t just play Tom Hardy in a Bane outfit. He played the parts for both of the Kray Brothers (not a great movie by any metric, but great character acting) and even Heathcliff in Wuthering Heights, (which I absolutely only know because I IMDB’d it) and… Bronson.
Bronson is a tale loosely based on a troubled British gent, who kept finding himself on the wrong side of the law. He was somewhat over-confident about his abilities in life, and then kept doing the wrong things with the same result. Which – spoiler – did not deliver a good outcome.
And may sound like a familiar story to you as a share trader?
Starting off on a bad footing with little education and some questionable decisions in his formative years (that were probably due to his circle of friends), Bronson’s overly high self-confidence seemed to play a large part of his downfall. Now he’s been in jail for 46 years, half of it in solitary.
I’ve been through a few big stockmarket cycles. I watched a GFC stop a mining boom in its tracks, and saw BHP drop from $49 to $18, and that moment when there were no bids on the screen for what was the biggest company in the Australian stockmarket.
I saw a property trust that was a household name, with a market cap sufficient to put it in the Top 10 companies on the ASX, with decades of strong performance, go into a trading halt and die within days.
When you ‘Bronson’ yourself for the first time, it is scary as hell. One minute you are thinking about what size boat you’ll need to suitably display your new-found skills as a share market trader, the next you are wondering what goes best with two-minute noodles to ward off scurvy.
One of my favourite ways of reclaiming my self-worth after a nasty sell-off is to prove my original investment thesis was correct. By trading my way out of a loss. The last big one only took five years to get back to breakeven, but I guess deep down I knew that eventually Covid would happen, retail traders would flood the market out of boredom and commodities would go up as a result of money printing.
In hindsight I should have gone harder and hung on longer, but at the time I thought the equivalent of a house-worth of investment would eventually pay off. Phew, back into the black.
(“You fight like a younger man, with nothing held back. Admirable but mistaken” – Bane.)
To tell the absolute truth I actually believed in the management, I believed in their projects, I believed that one day there would be a recovery in commodities and that their projects would be worth more. And even though it was hard to keep the faith, the only way I was ever going to recover that loss was to buy more at lower prices so that if it bounced I would have the option of reducing my holding at a much lower breakeven.
I call this the ‘Reggie Kray’, as I still acted like a madman, but did so with a well-considered strategy. All listed companies have some value as long as they can stay afloat, so buying a company with quality assets that are managed well through the dark times near shell-value can be quite rewarding. Eventually… (or they go broke).
The ‘Ronnie Kray’ is where you buy more just because the stock is dropping with no fundamental understanding of market forces or fundamental value, and this is also widely known as the ‘absolute whack-job-iest’ trading strategy, or ‘double-up to try your luck’.
It’s going to happen. At some stage, probably soon, the whole market is going to get spanked. Or maybe, the BNPL bubble will pop, or perhaps that ‘hole in the ground managed by a liar’ won’t find nickel or oil.
You’ll be well upside down looking at a heavy loss, and you’ve probably forgotten what a big loss really feels like after the last year which has featured some of the easiest money ever made.
I’ve talked about finding technical stop-losses using the features in Marketech Focus that may help you protect your capital, and eventually you’ll learn that a small loss is so much better than a big one, and hoping won’t make it so. But ‘the market’ does learn, and it adapts, trying to catch you off guard.
Have a look at what happened when Westgold touched the bottom of their channel. The WGX trade had been one of the easiest over the last year, but then it hit a commonly used stop-loss level and ‘got sold off’.
(“Calm down, Doctor! Now’s not the time for fear. That comes later” – Bane.)
I had bought a few on the trendline and then it dropped a few ticks lower, and smack, down nearly 10% within hours. I know enough about Westgold not to panic, so I’m probably going to ‘Denzel’ this one (that is where I just let the producers and directors go about their job making it a success, whilst just continuing to be me).
If it bombs there’s probably bigger problems in the world, so I’d let those problems play out and then top them up, knowing WGX’ll still be around for years. Or I’ll get back out with a small loss, claim it was due to ‘scheduling problems’ and wait for the next script.
This following stock is one that I would have already sold out of when it spiked, or never entered in the first place (I never entered). It doesn’t matter what it is, as this isn’t about slandering certain dodgy operators, or picking fights with people hiding behind fake names on chat-rooms, or being right.
It’s about risk/return and this did not pass the sniff test. A lot of ‘rockets’ look like this a few months later, so chasing them is definitely a strategy for ‘Ronnie’, the crazy one.
(“Theatricality and deception are powerful agents to the uninitiated” – Bane.)
Now let me overlay a thing called the Fibonacci sequence (see below), available to all clients of Marketech Focus at the click of a button. I think the Fibonacci sequence has something to do with Tom Hanks and that churchy movie at the Vatican with priest-ninjas, but I fell asleep before the end.
For some strange reason, stocks will often pull back about 38.2% from a big rally, and if they are going to continue upwards they will sometimes bounce from that point. After a supercharged rally like this one, they can definitely fall 50% and still bounce (see that first bounce off the 50% line?).
So when this fell through all levels of support on the back of a failed drilling campaign (that was announced as if it were a success), it was only ever going to continue to get worse. That is, in my humblest of backward-looking opinions…
(“It doesn’t matter who we are. The only thing that matters is our plan” – Bane)
I call this the ‘Nicholas Cage’; full of hype, badly managed, poorly written, poorly directed and you’ll end up losing your triceratops skull, and if you double up you’ll probably lose your French Chateau too. There’ll be a lot of ‘Nicholas Cages’ in this market, those who will then frantically pound out trades hoping to one day regain their past glory, and never quite get back what they once had.
There’s also going to be a lot of ‘Macaulay Culkins’, who will come into this market, make a big win, get ‘Michael Jackson’d’ and never work again. Good for them I guess.
But if you want to be a stayer in the big game, you’re going to need to be a Tom Hardy.
Toms have honed their craft before entering the market. They would have studied the fundamental and technical concepts. They would have waited for the right opportunity to enter – their ‘Black Hawk Down’ moment – where they played a bit part, but damn, a memorable one.
Toms would continue to hone their skills, take a whole bunch of smaller parts in roles that suit their personality, to build their portfolio, and then they would one day get a ‘Guy Ritchie’ moment, and eventually their own Bane.
We built the Marketech Focus trading platform for serious traders, those that know they can make money in the stockmarket as long as they have all the right information at their disposal. They need live streaming pricing, easy to use technical charts, full market depth, their own HIN and bank account, to be mobile – as well as low pricing. It’s not just a cheap platform for meme-traders, Nic Cages and Ronnies.
Because finding your own Bane is going to be the result of years of hard work, minimising your losses and letting your wins run. So, “Let the games begin!” (also Bane).
At Marketech our platform is about technology, providing you the tools and technology to trade. We encourage our high-function trading platform to get you live pricing, live charts, live market depth to ensure you have the tools and trading capability at your fingertips, and on your mobile phone or PC.
You trade your own stock on your individual HIN. It is your cash in your own Macquarie account where you keep the competitive interest you earn.
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Go to www.marketech.com.au to set up a free trial – you will be astounded by the simplicity and tools that this technology gives you. No spin, just low-cost trading and the tools that give you advantage over hype.
This article was developed in collaboration with Marketech Stockbroking Pty Ltd (AFSL 486148), a Stockhead advertiser at the time of publishing. This article does not constitute financial product advice. You should consider obtaining independent advice before making any financial decisions.