Here is the decision making process that should be used when looking at every trade you make. Check out $PLTR and $TDOC (January 26, 2021)
TDOC PLTR BYND
I am going to look at Teladoc ( NYSE: TDOC ) and Palantir ( NYSE: PLTR ), and I am going to talk about the 2 sides risk. People typically think of risk as losing money; Oh my gosh, I don’t want to buy that stock because that’s risky. Okay, what’s your risk? You are saying it’s risky because I might lose money. But then you are not really thinking about the other side, where I am afraid that if I don’t buy that stock I am going to miss out on a great trade. I am not going to make money so it is actually risky to NOT buy this stock.
Now, that doesn’t mean that you go out and buy any stock. It means that you always have to be assessing the 2 sides of risk, the risk of losing money against the risk of not making money. And somewhere in between is the sweet spot. To define that sweet spot a little more, a little closer, the idea is that you buy a stock right at the point of most resistance if you are buying a breakout. When I say most resistance I will actually say right when the stock breaks THROUGH the point of most resistance.
On this particular stock here ( NYSE: TDOC ) you will see, this was the peak. That’s the point of most resistance, that is where it’s like, oh crap when the stock gets up to 235.00, look at this. It got up to 235.00, a lot of selling pressure is pushing that stock down. So yes, the stock fell but it actually didn’t fall that far. It fell down to 220.00 and then started moving higher. So now we have a point where the stock finds support and we also have a point where the stock finds supply at right about 235.00.
So after this little pullback, this thing gets up there again to 235.00 on the nose and then sells off. And so you say, alright, lesson learned. I am not going to buy this stock until I know that it’s going to push through 235.00. And that’s a good thing, because 2-days later the stock is still down below; 3-days later it’s still down below. It is not until January 20th, when the stock broke out above 235.00. You are buying just above the point of greatest resistance. Right at the point where there has been a lot of supply.
And the reason why that is important is, the only way, this is obvious but typically you need to understand it, the only way the stock is going to get above 235.00 is if all the stock that was for sale at 235.00, which is what capped this day and this day, is if all the stock for sale at 235.00 has been soaked up. And only then will the stock ultimately move higher. So this is the time to be buying Teladoc ( NYSE: TDOC ), right here.
We took this stock down here the last time the stock broke this line of greatest resistance, this supply line here. So we got in a little bit late but it was an awesome trade. So we are buying the stock here, the stock was up yesterday, up at 30 percent. And I said, “Okay, it’s time to book profits.” And so we took profits and this is why I am talking about this trade. First of all, it was a great trade and you can do this too. But the other thing is, there are the 2 sides of risk here.
So why did I choose to sell it yesterday? Do I think the stock is done going down? No. Do I think it’s toppy? Actually, no, on a daily chart, yes but that’s the point. It started looking to me like there was more risk of downside than there was of further upside. And so the balance, the scales of risk, balancing risk of missing out versus risk of loss, it is skewed now, it has started tipping down in favor of the risk of loss. And that is why I chose to sell this stock.
It’s the same thing with Palantir ( NYSE: PLTR ). We had a great trade; we got this trade on Friday. And if I recall correctly we made about 30 percent on that as well. And the idea, again, was a new high, an IPO strategy, this thing could go to $40.00, $45.00, $50.00. But as I looked at this here, I’m seeing more risk that the stock could fall, especially the way it traded yesterday. It looked like it had the potential to fall and so we got out of it. That was a good trade because, yes, we risked missing out on the upside but we didn’t want to risk getting caught and have a lot of our profits taken off.
And so the idea was, you know what, 30 percent in less than a full day of trading, that’s good money, I will go ahead and take that off the table. So now, if Palantir ( NYSE: PLTR ) keeps running up here I am not going to regret selling it because that was definitely the right trade to make. If Palantir ( NYSE: PLTR ) falls down to 30.00 I am not going to be happy that I sold it because I didn’t sell it because I thought Palantir ( NYSE: PLTR ) was going to fall down to 30.00.
I sold it because I was concerned about the risk of a pullback. If it does pull back, I don’t look at this as, oh, I called that one, I got that one right. No, it has nothing to do with that, the stock is going to do what it’s going to do. It has to do with the fact that I am looking at the way my position is and saying, wow, this is a good position and I have got to protect that, and so that’s what I have done. I think it’s important to study trades that worked out really well. Particularly, trades that you can explain why you did what you did. Because once you can do that, then you start having something that you can hang your hat on and it can be an expensive hat, which is nice. So just watch stuff like this.
Don’t be too eager to just get in on something after it’s already gone up, that would be Beyond Meat ( NASDAQ: BYND ). A nice move higher and you could say, oh man, the stock is up 21 percent. That’s awesome, but not if you bought at the open. If you bought at the open the stock is down 12 percent. That is a big losing trade; so have your criteria, what you need to do to get in, what you need to do to get out. It is always about the 2 sides of risk. That is hugely important.
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