Trading is a lot like going to the gun range. I explain….
This is Dan Fitzpatrick with your Chart of the Day. I am doing this a little bit differently today and this is why ( INDEXSP: .INX ); you can see we are in this corrective mode. And there is a right time and a wrong time to take action and buy things. Virtually every single time is the wrong time.
That’s why trading is so hard, there is only a very, very select few times to buy. Such as, as I am looking at this chart, not the best one but you are seeing this and you’re seeing this resistance. This isn’t the time to buy, it bumps up against 4,600.00, and volume is what it is the next day.
This isn’t the time to buy because you don’t know which way it is going to go. For crying out loud, it’s been drifting sideways, for how long? And hence, 2-days later we’ve reinforced that this wasn’t really the time to buy. It bumped up, again, at an even number, Hey, I think I’m going to sell at 4,600.00.
How many people do you think were doing that? As opposed to, Hey, I think I am going to buy at 4,600.00. Why would somebody do that when it’s only trading a little bit below there? So logically it doesn’t make sense. Listen to me, I’m giving you pearls here, this is chart reading 901.
Then it just sits there and then once again, Wow, I’m sure glad I didn’t buy here or here. Or, on the other hand, Crap, I wish I hadn’t bought here because here I am 4-days later sitting here, now I’m uncertain, now I’m nervous about my position that I thought I was buying really, really close, oh boy this is going to break out above this level from July 2023.
And now, I’m down, not by a lot but by 50 points. I don’t want to be down by 50 points, I’d rather be flat. I would certainly rather be up by 50 points but that is not what the chart is giving me. So instead, I’m riding the crapper here, wondering what is going to happen next. Well, it’s okay.
All of these days later this is still in a trading range. Now I’m getting interested, right here, I’m interested. But we could still see more of the same. Right there, that’s the time to buy, right here at a higher level than it was here. But yesterday, meaning on the 8th, yesterday, we got a push through 4,600.00. It closed at 4,604.00, not a big deal.
When something is 4,600, 4 points is basically flat. But technically, it’s above here. The high was 4,607.00, Well, maybe it’s really not that high. No, it is. For crying out loud, this is last July. Do you think the market really cares, it’s 4,600.00, that’s what matters. So for 2-days in a row, this thing closes at 4,600.00.
Well, if you’re intraday trading then you’re going to buy some there. By the way, this could be any chart, I just happen to be looking at the S&P ( INDEXSP: .INX ) and I’m riffing here. This is the time to be buying this, right here. This, well you are a day late, it would have been better to buy yesterday. The day before? No, not really, that’s a little too much risk. You need to wait for some kind of confirmation.
But if you are buying here, okay, you’re going to make money because the current price is 4,697.00 so, obviously, you are going to make money between then and now. But again, you’re a little bit late. Now this happens, and you’re going, “Well, better late than never because if I’m still in the never camp, I’m really bummed out.” I’ll say it once again, this was really the best day.
This was really the best time to buy this chart. Now, would you buy here? You may but I wouldn’t, I couldn’t, it’s up too much. And then, sure enough, it goes up more. Okay fine, ultimately it pulls back, and then here we are now. But it all started right here, where are you going to buy? Are you going to buy here? Oh well, you’re going to buy here.
All of these other times you could say, “Well, I would have still made money if I bought here, here, here, here, basically all the way up except on this particular day. Yeah, you would have still made money, but you could have lost money, that’s not good trading. Good trading is to find something, there are 2 parts to it, there’s a decision and there’s an action.
You make a decision, yes, I want to buy the S&P 500 ( INDEXSP: .INX ). Now, where am I going to buy it? Well, I made the decision, I’ll buy it now. No, you make the decision and then you look and you wait to take your action. It’s the same thing when I go to the shooting range,
So why am I saying that? I’m saying that for this reason, I go to the shooting range and this has to do with trading. I go to the shooting range and I decide I’m going to kill some white paper. I am going to just absolutely obliterate some stuff there. So I have made a decision to kill some targets. So I go in there, again, my decision is made.
I’ve already made that decision. I’ve made that decision to go ahead and kill some targets. I go in, check-in, show them my ID, and give them my driver’s license. They give me a lane, I make sure I’ve got my ears and my eyes. I had to buy some targets, so I go in there, I clip the targets, and move them down range a little bit.
I get my firearm out, I’ve already loaded all of my mags because they are always loaded, always ready. By the way, I’ve already made the decision that I’m going to shoot, so I go through this whole thing. It takes me 10-15 minutes, finally, I’m up there, I’ve got my loaded mags. I pop one in there, locked, cocked, ready to rock.
Finally, after all this time I’m taking aim, and I’m looking, and I’m looking. And then finally, when I feel like I am completely set I soft squeeze the trigger, get a surprise fire, which is what you want to do, otherwise it’s always down and to the left, and then I’ve made my first trade. I’ve traded my bullet for a hole in the target. Guys, that’s trading, only you don’t need safety glasses or ear muffs. That is absolutely a good analogy to trading.
The actual trade itself is like the actual shot, squeeze, squeeze, squeeze, boom. That’s your trade, a click of the mouse, everything else is preparation. All of this stuff that you’re doing here, all of the chart analysis, everything that you are doing, this is all in preparation for pulling the trigger and getting that surprise release.
Don’t ever forget that. And one other thing, as long as I’m finishing this, I went to the range, I have several firearms because according to Fitzpatrick, you can never have enough. I took my various firearms to the range and I decided, I’m going to put 50 through each one. That was my decision. You have a certain number of dollar bills, the same thing.
You’ve decided to go ahead and you are going to trade those dollar bills for stock, just like I’m going to trade my rounds for holes in targets. So I’ve got all my mags loaded and I take that first shot. Then I do like they do in the movies, boom, boom, boom, boom, boom, boom. boom? No, because each shot is an independent shot. If I am offending anybody because of the fact that I like to shoot, I’m sure you’ll live with it.
The point is, when I’m shooting I look at each individual round as a separate shot and so I line up each time. I was probably there for 2 hours, why? Because I was working on certain things, I hadn’t shot in a while. So I’m looking and I’m taking these rounds, and I got them out. Each time I’m firing a round it is for a specific purpose, I’m working on a specific thing because I want my shooting to be better.
Listen to me, the fact that the rounds are going through the center of the target, either center mass, or right in the forehead, the fact that they’re doing that is a consequence of me shooting well. So the goal that I have is not to put the rounds right in the middle of the target. That’s what I want to happen, the same way as you want to make money.
But the goal is not to put the rounds in the center of the target because guess what? Think about this, if that was the goal, well why have I put the targets so far down range? Why don’t I just pull it back and have it be right here, I put the barrel right up against it and go boom, boom, boom, boom, boom, they’re all through the same hole.
The goal, my aim, my objective is to shoot well, to do the things that I know I am supposed to be doing. If I can put all of these things together, then the consequence of me putting all these things together in a correct way leads me to have some really nice rounds, really nice clusters, right where they’re supposed to be. It’s a consequence of me doing the things that I know I need to do.
Trading is exactly like that, only not as noisy. Because if you are trading well if you are focusing on trading well, and there’s a lot to that, there’s a lot to trading well other than just making money. Making money is a consequence of trading well. But what you have got to understand too is, that losing money is also a consequence of trading well.
If you are on a roll and you’ve got six winners in a row, that’s maybe not necessarily because you’re trading well. Maybe it’s just the market, it’s making you feel like a winner. Maybe if you’ve got six losers in a row, that doesn’t mean you’re a bad trader, maybe you’re trading really well but trading is different than winning.
You’ve got to expect to have some losses in your account, on your blotter, on your trade sheet. You have got to expect to have some losses there. It’s like flipping a coin, frankly, and you can say, “I’m flipping a coin and I got five heads in a row.” So what are the chances that I’m going to get a head on the sixth one?
Well, five in a row, for crying out loud, I’ve got to have a tail come in here sometime. No, it’s still a 50/50 chance. It’s not likely to happen but you could, theoretically, flip a coin 100 times and every single one would wind up tails. Because each one is a 50/50 proposition. Now, some of you statisticians can poke a hole in that.
The point that I’m making is, that trading, again, is two things, it’s deciding to trade. It’s deciding, I want to buy this stock. Dan, I’ve got this target, I want to shoot that target. Just making that decision is totally different and it’s a precursor to actually taking the action.
If you can get that through your mind, and through your noggin, and through your mouse, what’s going to happen is, you are going to find yourself trading less. Because on this chart there are only a very few times that are the correct time to be buying a stock.
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