Author: Investa

Unbeknownst to most traders, fear does not only stem from declining stocks, it also occurs on soaring ones. FOMO, or Fear Of Missing Out, happens when you enter a trade just because you “fear” out of missing from that opportunity or move. FOMO is defined as a “pervasive apprehension that others might be having rewarding experiences from which one is absent.”

DISCIPLINED VS. FOMO TRADER

A rational, calm, and disciplined trader should trade like this: he creates a watchlist during the weekend, charts them, and prepares a trading plan before market opens. Those are all pre-market activity. He executes when his buy and sell triggers get hit.

A FOMO trader does not look for a specific setup. He’s largely attracted to volatility and buys almost passively without ample preparation. Remember the hype about the third telco during 2018? Many investors and traders experienced FOMO on those stocks that were related to that telco craze, some investors actually spent their hard-earned money and invested in without knowing the background or capability of the stock/company. Even people who are beginners in investing simply opened up accounts just because of the hype! This is not recommended at all.

It’s normal to experience anxiety when you see a stock on its way to a ceiling price, especially when you haven’t been profitable in the stock market yet and not used to missing on ceiling plays. Who doesn’t like missing on huge market moves? Naturally, no one does.

When entering a trade, it’s important that you don’t enter for the sake of not missing the move. What’s more important is to trade your planned trades since they are made at the time when you’re most objective, rational and not emotional.

If you…

• Do not wait for your trading setups and enter early before your trigger price gets hit for fear that you might miss the move.
• Do not believe that there will be plenty of other plays that the market will allow you to ride upon.
• Do not have a strategy in approaching the stock market correctly.
• Want to gain money as fast as possible because your peers are doing so well.
• Are over-confident with your trades after incurring a winning streak.
• Revenge trade after losing trades.
• Chase price as they leave your entry area/zone.
• Rely on the analysis of other people.

Then I hate to break it BUT most likely, you’re a FOMO trader.

HOW TO AVOID FOMO?

Here’s a possible remedy to cure your FOMO behavior.

Understand that…

• Trading is a marathon, not a sprint. Winning trades out of careful preparation benefits you in the long run.
• You cannot ride every high-flying trade. Some trades won’t be lined up accordingly with your preferred setups and strategy.
• Know then to trade and more importantly, know when not to.
• Even though we cannot be emotionless, we can actually control how we behave when they arise.

CONCLUSION

If you missed out on one high-flyer, study why you missed it. Adjust your screening strategy and forget about the “what could have.” If you’re an investor, stick with your buy low, sell high strategy. Rely on the fundamentals of the company.

The adrenaline rush from the pleasure and chance to generate money can really stick to your head and you’ll then be susceptible to give in to your emotions. Do not rely on your instincts but rather follow a structured approach in trading the market and write down your trades in your trading journal after every single trade you take.

So, set rules that will help govern your trading and follow them religiously. Structure a proper trading routine. Develop good habits to help yourself act better among different scenarios. Develop a strong will to deter your impulses. No matter how emotional you can get in the market, you should always be able to control your actions.

Good luck!

When trading on technicals, some traders consider chart patterns as of one the most effective trading tools in their set up as they are pure price-action. Traders look out for chart patterns or price formations to help them know if the odds are in their favor.

Chart patterns play a significant role in your ability to be more profitable in the market as it will give you an idea wha¬t to play and a chance to ride the breakouts, reversals, continuations, and many others. These chart patterns can occur in any given time frame such as intraday, monthly, weekly, or daily, as you will see in the following chart examples.

If you’re a new trader, there are loads of chart patterns you need to acquaint yourself into. Using real chart examples in the PSE, we’ll discuss how you can use some of these patterns to your advantage.

1. Head and Shoulders

Head and shoulders is one of the most popular chart patterns among the list and is most likely to occur during the end of most bullish trends. It has four parts: the left and the right shoulders, head, and neckline.

Here’s the analysis behind the pattern using the chart above.

From the low (P8.50/sh) of the leftmost candlestick of the chart up until the highest traded price during November (P17.46/sh), we can see how $X (Xurpas Inc.) held a bullish trend that gained more than % in gains.

By placing our attention to the bullish trend pattern (identified by successive higher highs and higher lows), we can gauge a stock’s likeliness to continue its trend or be prepared if a reversal is looming.

$X did not create a higher low after retracing from its high of 17.46/sh, it would have been better if $X found support at the resistance (high) of the left shoulder for a classic price flip (support/resistance flip). The market required $X to find support at the same low of the left shoulder, forming the so-called neckline. This could be taken as an indication that the uptrend was weakening given that the retracement was deep (a steep -19% pullback). Sellers were prevailing during that time. For the right shoulder, we can see that $X didn’t create a higher high and didn’t test the high of the head. It then preceded to strongly breakdown the previous support (neckline) confirming the succumbing of the buyers to the sellers.

The key in this pattern is to look at how a stock creates its highs and lows during an uptrend and check if it breakdowns key areas of support.

2. Inverse Head and Shoulder

Inverse head and shoulders pattern, the opposite of the head and shoulders pattern (as shown above), also have the main three parts: left and fight shoulders, head, and neckline. This time, it’s an indication of a bullish reversal. See how each succeeding pullback after the head turns into a higher low, catapulting $MBT (Metropolitan Bank & Trust Company) to form new higher highs. After breaking the neckline, the banking company gained for as much as 94% up to the rightmost candlestick in the chart.

3. Cup and Handle

As the name implies, the pattern should resemble a cup and a handle. It is characterized by the “U” shape formed after a stock declines aggressively followed by a short consolidation and an equal rally of the same size as the decline, as well as a handle after the pullback of the high formed on the right part of the cup as shown in the above $SMC (San Miguel Corporation) chart.

When this pattern is found during an uptrend, it could sometimes serve as a continuation pattern. When seen on downtrends, this pattern could signal a possible bullish reversal.

4. Double Bottom

The double bottom pattern serves as a predictor for a bullish reversal pattern and an existing downtrend to reverse from. Bottom one should serve as the lowest swing low of the current downtrend and bottom two should test the first bottom as support. If bottom two does not break the low of bottom one, it should test the highest swing high between the two bottoms and breakout of it.

We can see $2GO (2GO Group, Inc.) doing a successful bullish reversal using the double bottom pattern. Traders who were able to ride the breakout could’ve gained more than 60% given that they were able to exit in profit.

5. Double Top

The double top pattern is the bearish equivalent of the double bottom. When seen during uptrends, it signals a possible shift to the downside. It is characterized by two tops and a neckline/support line that confirms the pattern when broken.

In the chart above $SSI (SSI Group, Inc.) failed to breakout the resistance of top one after testing it, causing the stock to retest the previous support as identified by the swing low. After the second retest of the said support, $SSI broke its support with a strong bearish candle, confirming the double top pattern.

6. Pennant

The chart of $FDC (Filinvest Development Corporation) above is an example of a bullish pennant. This pattern serves as a consolidation pattern after a stock trend upward. It has two parts: the flagpole and the pennant itself. The flagpole is the initial rally before the consolidation, an important part of the pennant as its length can serve as a stock’s target price. The pennant, meanwhile, is the period of consolidation. It is defined by two trendlines that converge at one point with one another.

Pennants are good indication of an uptrend as it allows traders to take profit while at the same time allowing other traders to get in, opening an opportunity of a higher move.

There’s also a bearish counterpart called the bearish pennant where the breakout point is the low or the support of the pennant.

Conclusion

Always remember that the psychology of the market on how and why they form these patterns are more important than knowing the names or designs of these patterns. Understanding chart patterns will allow you to confirm your buy and sell signals and not just rely on your gut feels or hunches. Don’t forget to have solid risk management incorporated in your system. Just because a stock breaks out of your entry point doesn’t mean that it won’t retrace back to your entry price and end up becoming a loss.

While one list/article cannot capture every possible chart pattern in the market, these six patterns will allow you to develop your base knowledge in technical analysis that will increase your potential to identify market-changing events that could possibly leads to increased trading success.

Stock trading is a game of probabilities.

You can’t judge a trading strategy just because of a single, profitable trade or because of the handful factors that aligned in your trading setup. There are lots of mix and match components which bring conviction that there’s no ‘perfect’ one and even if you have found your edge in the market, you still can’t be certain because there might be random occurrences that are nearly impossible to predict or what we simply call, the “Black Swan.”

Coined by Nassim Nicholas Taleb, a finance professor from NYU and Wall Street trader, black swan events are occurrences that are extremely difficult to almost impossible to predict as they aren’t your typical breakdown of support or gap up and downs. These events can have more terrible consequences on the stock that you’re holding.

There are three (3) attributes of a black swan event:

1. The event is unforeseen to the observer.
2. The event results in severe consequences.
3. After the manifestation of a black swan event, people will rationalize the event as foreseeable (hindsight bias).

For example, a government official declaring the ban on the export of goods made by a company can be considered a black swan event. A company declaring sudden destruction of their plants and factories due to acts of God is another instance of a black swan event.

Samples of black swan events that made a significant impact in the financial world

1. 9/11 Terrorist Attack

On September 11, 2001, the coordinated terrorist attacks in the USA forced their main bourses, NASDAQ and NYSE, to close trading on that same day. In the first trading week after the attack, stocks dropped significantly – incurring a loss of $1.4 trillion in stock market value.

2. 1997 Asian Financial Crisis

The crisis is said to have started when Thailand unpegged the baht to the US dollar. A series of currency devaluations subsequently followed across several Asian markets where currencies were seen to have dropped by 38% and international stocks by 60%.

3. “Dotcom” Crash

The said crash rubbed out around a trillion dollars worth of stock value because during the 1980’s and 1990’s, as internet companies sprout from almost everywhere, the value of some of the successful ones was tremendously overvalued. So from the year 2000 to 2002, lots of internet companies crashed, resulting in investors to incur huge losses. The NASDAQ composite in the USE lost 78% of its value during those times.

Black Swan Events in the PSE

1. 2GO Group, Inc.

On July 07, 2017, in the midst of a huge accounting scandal, 2GO announced that their CFO was resigning. The PSE implemented a two-day trading halt because of this misdeclaration of financial statements. Investors found themselves unable to do anything with their current position due to this. The stock opened -19.74% down on the first trading day after the trading halt, much to the dismay of investors that capitulated because the stock closed 21.93% up from the open.

2. Rizal Commercial Banking Corporation

During February 2017, a whopping $81 million was stolen by hackers from the Bangladesh Central Bank. The money was found to be wired in multiple RCBC accounts in a branch in Makati, Philippines. The BSP imposed a hefty one billion-peso fine over the laundering scam.

Conclusion

Black swan events do not only apply to adverse events, especially to markets that allow both long and short positions over security. A market catastrophically turning to the red can be useful for traders with short positions.

In the stock market, anything can really happen. This should serve as another reason why investors and traders are better off diversifying their positions.

The ultimate goal of any trader like you is to consistently make a profit in the market that you chose to trade. To do so, you need to identify your edge in the market — which means learning different trading strategies and set-ups and find the best one that makes the most sense to you. For some, they are able to find their ‘holy grail’ in a few months and sometimes, it will take years of getting to know how the market works and your personal limitations as a trader.

You will experience failures, but that’s part of the process.

In this article, we’re going to tackle how you can find your bread-and-butter setups in the market.

How do we start trading the market?

When starting, we try to read as much reading material as we can through blogs, web articles or from the top recommended books we often hear. We also look for trading videos online created by highly-regarded traders and even follow some of these well-known traders who regularly display their skills in the market with their “trophy trades” or bagger trades on social media. We often dissect the average price of their port snaps, backtest it, and apply it on our own portfolio’s trades but sometimes, we can’t even manage the trade like they would and it often leads us to disappointments. We lack the experience and conviction they have with the setup. We don’t know whether it’s the 10th or the 100th time the said trader executed that setup or more importantly the amount of backtesting, dissecting, journaling, he has done behind his bagger trades. We might not even know whether that particular setup fits our trading profile or not. This bitter losing experience leads most of us to try out another setup and when we do, we lose more than what we can win, and then we begin again to search for another setup from another trader or trading book. The cycle goes on and on and on until we are burned and lost all of our capital.

Steps in finding your trading setup

Finding your niche setup in the market is no walk in the park. The reason behind that is because you’ll need to have the utmost discipline and commitment in tweaking and adjusting your trading setup.

Here are the steps to find the right trading setup for you:

1. Know your trading profile. Ask yourself questions such as:
a. Which setups can you trade while working on your day job?
b. Are you more fitted to trade setups with trend-following objective?
c. Do you want to trade bounce play setups but can only enter EOD (end of day)?

2. Back test, back test, and back test
a. Know why and how the setup works
b. Should you add an indicator to confirm your buy and sell signals for your setup?

3. Paper Trade
a. Try out the setup in real-time without using real money and make use of Virtual Trading to test your skills. Try https://www.investagrams.com/vTrade

4. Trade the setup using real money
a. Risk small/Allocate a small portion of your portfolio

5. Journal your trades (the most important step)
a. Record your entries, exits, and emotions during the trade
b. Review your data and reflect from it
c. You may start your trading journal adventure here: https://www.investagrams.com/TradeJournal/

Take one setup at a time. It’s best not to be called as someone who’s the jack of all trades or like a soldier who’s manning a machine gun shooting at everything. Instead, be more like a sniper, calmly waiting for his target and shooting with high accuracy.

As Bruce Lee puts it, “I fear not the man who has practiced 10,000 kicks once, but I fear the man who has practiced one kick 10,000 times.”

Good luck on your trading!