You’re Doing It Wrong

Many people believe technical analysis doesn’t work.

“You can’t make money with candlesticks, moving averages or volume!”

That it’s all “baked into the fundamentals.” Somehow reading charts became something only lazy people do.

Because they don’t have the skills to interpret cash flow or a balance sheet what they’re doing is a waste of time.

Fundamental speculators look for “value” or growth. And then expect the future to unfold as predictably as the sun rising in the east.

Which means those fundamental snobs must never be wrong. Yeah right. The only people who lose money are chart readers.

The problem is neither technical analysis or value investing. The problem is one of predicting. And the current market is the best validation of my point.

With the current economy, rising interest rates and inflation, the market should be going down. But it’s not. The Nasdaq made recent 52-week highs.

A common question we get unfolds something like this: “But how do I know the stock will continue going up…?”

And there’s the problem. You think speculating is about knowing what’s going to happen next.

It’s not.

It’s about what’s probably going to happen, and what you’re definitely going to do. It’s about making distinctions with the information you have now, and then deciding what is most likely going to happen.

The truth is nobody knows what’s going to happen next.

So stop. Just stop predicting.
And more importantly, stop believing that’s what speculating is all about.

We are all doing this to make money. To turn 5k into 8k. So we assess the situation and decide when it’s okay to take risks. We’re okay with risk because we like our odds.

And that’s something we need to discuss.

Successful speculating is about having an edge. And how do we define edge? It means that you’ve built an argument that something is likely to happen next.

LIKELY. Not definitely.

It also means that sometimes, and this is the second part of any edge – it’s not likely to happen. Most people focus on the first likely outcome, and close their eyes to the second.

And it goes deeper.

Whether trading or investing, you forget that there’s more decisions to make. We decided to act based on the information, but wait there’s more. We have a whole new set of decisions after we enter the position.

And THAT”S where the magic happens. That’s where the winners live.

We learn to set up great ideas, those with an edge, but it’s between entry and exit that the moolah is made.

It’s a second set of skills that you didn’t know existed.

So get over yourself. Get over your desire to “know” the future and start planning. Get over your fear that you don’t know the future.

Simply build an argument for accepting risk, then map out a plan of action after you do.

If you’re afraid you don’t know what’s going to happen next, I got news for you – nobody does. But the great ones, the winners don’t need to. And neither do you.

Profitable traders build an edge and then trust the odds. My last point is one that’s a core belief in our community.

Each trade result is random (even a strong edge has losers), but over a large sample size of good ideas, the results are predictable.

Assuming you learn to cut losses and have a system for managing winners.