Do you want to just trade, or do you want to make money? Read this, and your trades will become significantly more lucrative.
You might think that a deep dive into the stock market isn’t exactly rocket science, and you’re right—it’s not. But it does require a knack for making well-informed decisions that balance risk and reward masterfully. Today, I’m pulling back the curtain on a trade I made with SHOP that reveals the importance of strategic thought and market savvy.
The Art of Making Money Through Trading
Making money in the market is akin to finding your way through a complex labyrinth. But what exactly turns a mere trader into a savvy investor? Keep reading, and you’ll find out.
Analyzing the Trade: A Case Study on SHOP
I chose SHOP based on a combination of factors that seemed like a green light. But was picking a stock based on its ticker symbol a good idea? As we dive deeper into this case study, you’ll see why relying on superficial cues can be misleading.
Opening Strategy: Why Timing and Selection Matter
And then came the moment to make a move. Was my plan sufficient? What’s the secret sauce to timing and selection in the stock market? Sometimes, it’s the basics that make all the difference. We’ll explore this further.
Closing with Precision: Knowing When to Exit
Knowing when to step away is as crucial as knowing when to engage. But how do you make that call? We’ll explore strategies that can help you lock in profits and minimize losses, revealing that sometimes, exiting at the right time is what defines success.
At this point, you might be curious about the specifics of my SHOP trade. Were there signs I overlooked?
Learning from Losses: A Critical Analysis
And let’s be honest: not every trade is a win. But what lessons can be drawn from losses? Understanding our missteps can lead to better outcomes in the future, and yes, even losses can pivot us toward success.
Terms and Definitions
Before we go further, let’s demystify some jargon. From “RS Rating” to “Volume U/D Ratio,” understanding these terms is key to grasping the full story.
EMA 21 Calculates the 21-period exponential moving average, highlighting short-term trends.
SMA 50 Averages the price over 50 periods, showing medium-term trends without overemphasizing recent data.
SMA 200 Averages the price over 200 periods, revealing long-term trends by treating all data equally.
Industry Rank Investor’s Business Daily’s system ranks industries 1 to 197 based on performance. It guides us in CAN SLIM TRADING towards leading sectors.
U/D Ratio Measures stocks closing up versus down. A ratio above 1.0 indicates bullish sentiment, important in CAN SLIM TRADING.
RS Rating Ranks a stock’s performance on a 1 to 99 scale. I look for at least 85, showing strong momentum and growth potential.
RS Line Compares stock price to the market, plotted as a ratio. We seek an uptrend, indicating outperformance and strong momentum.
Volatility Measures how much a security’s price fluctuates over time. High volatility means large price changes, indicating risk and potential reward.
Institutional Ownership Trend indicates whether the stock is under accumulation or distribution by the institutions.
Strategies for Future Trades: Lessons Learned
And here’s the twist: realizing that some stock tickers, especially the appealing ones, influence our decision-making was a game-changer. This insight is crucial, and as we move forward, I’ll share strategies that have refined my trading approach, making each decision more informed than the last.
details at a glance
The upward purple arrow shows where I bought the stock. The downward purple arrow shows where I sold it:
Opening
- Underlying: SHOP
- Date: 21 Mar 2024
- Underlying Price: $83.17
- Stop Loss: $79.89
- Profit Target: $99.80
- Market Outlook: Confirmed uptrend
- RS Rating: 90
- RS Line Trend (U/N/D): N
- Industry Rank (X / 197): 47
- Volume U/D Ratio: 1.1
- Institutional Ownership Trend (U/N/D): U
- Position Risk, %: 3.92
- Position Risk to NL, %: 0.29
- Potential Profit (Position), %: 19.88
- Risk to Reward Ratio: 0.20
- Position Size, %: 7.45
- Why did I open this trade at that point? The price of the stock broke above key moving averages.
- Was it an ideal buy? If it was, take a screenshot: No. The price didn’t come out of a base.
Closing
- Date (Close): 21 Mar 2024
- Price (Close): $79.86
- Market Outlook: Confirmed uptrend
- RS Rating: 90
- RS Change: 0
- Remarks: The stock price was too volatile, and I got stopped out. Price chart reading mistakes could have been avoided. I was allured by the brand, which influenced my buying decision.
Results
- What went well? I bought the stock when the price broke above EMA 21 and SMA 50.
- Cause of Error / IMPROVE: Seems I didn’t acknowledge the price action had been volatile. Although the volatility was contracting, intraday price swings were quite heavy, and the stock spent a lot of time below SMA 50. When I bought the stock, the volume wasn’t high enough.
- Lessons Learned: We need to be aware that some ticker symbols, especially more famous ones, can influence our thought process. This should not be allowed. Objective analysis is crucial, as this bias can be costly.
- Position ROI, %: -5.15
- Position ROI (Portfolio), %: -0.38
- Position Open Time (Trading Days): 0
- Position Open Time (Days): 0
Conclusion
Navigating the stock market is a journey filled with lessons, some more expensive than others. My SHOP escapade taught me that making money in trading requires more than just a fancy ticker symbol. It demands analysis, strategy, and an awareness of our biases. Remember, every misstep is an opportunity to learn, and every successful trade is a chance to pat yourself on the back (briefly) before diving back in. So, let’s keep our heads in the game and our decisions unbiased by the allure of catchy tickers. After all, the goal is to make money, not to collect cool stock names.
