Hello Singapore

Hello Singapore!

Allow me to Introduce myself. I am Mark, otherwise known on this blog as tradinginsider. I have noticed that there is suddenly a lot of hits coming from Singapore, so I decided to say hi! 

My style of trading as you may know from watching me for a while is fast, loose and intuitive and based on 20 plus years of watching and playing the market. I have a cousin that is in a trading firm downtown Chicago and we were comparing trading styles. He is a suit and tie guy following recommendations and rules that his firm instituted. I have no such restrictions. As a matter of fact, I would not do so well in an environment such as that as it gives little freedom of expression and experimentation.

How I Trade

I trade using a contrarian strategy: I trade against the market because it allows me to utilize the stock markets greed and fear. For example, when a stock suddenly has a sell off, everyone sees this, and feeling the fear of loss, they also sell, which creates a chain reaction of selling momentum. This causes the stock to temporarily dip below its true valuation in the middle of the panic. I identify this stock while it is happening and I come in and do the opposite of the panicking crowd: I buy this stock while is is oversold. Over the next few days the market comes to its senses with the panic over and takes a logical look at the stock, sees that its oversold, and the stock bounces back up to its correct valuation with the new news factored in. That enables me to make a sudden 20,50,100% or more profit overnight or over 2-3 trading days.

The opposite is also true for greed. When a stock has good news, people start to buy it. Other people see a momentum price climb and then everyone starts to purchase the stock driving the price up higher than it should be with the new news factored in. I then indentify the stock while the greed mania is happening and purchase puts, betting it will go back down. A day or two later when the greed/mania is over, the market sobers up and takes a logical look at the stock and sees its overbought, and the stock suddenly corrects down to its properly valued price. This makes my puts suddenly jump in value 20,50,100% or more, then I exit my position. I do this over and over again, because greed and fear will always be around in the market.

I also use technical charting analysis which tells me which direction the market will be going and overtime this allows me to accurately predict tomorrows market 85-90 % of the time, barring any sudden news.

Ever notice that when the market is up, most of the stocks go up with it, and when the market is down, most of the stocks go down with it? Thats because the market is like the ocean, and stocks are like beach balls floating on top of the water near the shore. When the waves come in, the stocks ride the waves on in. When the waves pull back, the stocks ride the water on the way out.

Being aware of this fact, I first do technical analysis on the market to determine which way the market will be going the next day. Lets say I think that the market will be going up. I will then go to the most down list for the day, or stocks that have suffered the biggest losses of the day and go through the list and using fundamental and technical analysis, determine which stocks are oversold due to fear and are incorrectly undervalued. I then purchase calls with prices that have been flattened due to the sell off and wait until the next day.

Two things happen the next day:

1. The stock bounces back up to its correct valuation after people realize that the stock has been oversold now that the fear has passed
2. This same stock from number 1 above is also PULLED UP by the stock market going up the next day like a beach ball getting pulled up by a wave going in.

So I have a double effect action here. The stock bounces back to its correct valuation and it is also helped by the market pulling it up as well, as the market is up that next day as I predicted with technical analysis.

Pretty cool, huh? The same is also true in reverse. If I decide that the market is due to drop the next day from my technical analysis on the market, I will go to the most up stocks for the day list and go through that list and identify stocks that due to greed are being overbought. I then purchase puts for cheap as the stock has been climbing hard. Not only do I plan for the stock to bounce back down to its proper price the next day, I plan on the market itself helping me as it also is going to drop the next day via my prediction. 

Why Fear and Greed?

Why is this prevalent in the Stock Market? The reason is biology. We have evolved to use this for survival in our Amygdala center of our brain. Fear to avoid danger and potential death, and greed to enable us to amass resources for better chances of survival.

For example, when in primitive times you were standing in a crowd of people and suddenly without warning everyone started running in one direction at top speed, you had better join them without asking questions or standing there looking around for the cause because suddenly you could be a sabre tooth tiger's dinner. The time you hesitated could mean your death out in the wild. So we evolved group fear instinct and we follow the herd as it helped our survival.

The same thing with greed. When we see the opportunity to better our situation to a great degree, our brains suddenly flush us with pleasure chemicals that make it pleasurable to act spontaneously in order to get more wealth, better social standing and to obtain more resources. So you may say that Fear and Greed is built into us. And it is very hard to resist the temptation to run with the crowd.

I will give you the example of the US housing crisis meltdown we had in 2008-2009. In 2004 in America it was very easy to buy a house. You could almost have been unemployed and still signed and received a house. It was risky, because the financing options were sliding scale, dependent on future market moves. Everyone saw how easy it was to get into real estate, and people feared that they would be leaving money on the table if they also did not jump in. They wanted to better their families situation and start building equity. 

Suddenly the housing crisis hit, rates changed, and people couldn't afford their house payment. Millions lost their homes, and the price of housing plummeted. Houses dropped 30-40% or more in value devastating families and communities. The prices stayed low and didn't start rising again until 2011-2012.

But Contrarian traders sat out and watched the housing bubble get bigger and bigger. They sat there with thier cash, because Contrarians do not become emotionally compromised and we can spot bubbles. When the markets crashed and there was blood in the streets, that's when they came in and started buying at depressed prices. A few years later, and the prices bounced back up and Contrarians sold for 40% profit.

Here is another Contrarian move: In America on 9/11/01 we were attacked by terrorists and 2 airplanes went into 2 skyscrapers and the skyscrapers collapsed in New York City. The next day ALL airline stocks dropped by 60-70%. I remember looking at that wondering if people were thinking that there would no longer be anymore air travel or airplanes. Why were the airline stocks all crushed that badly? Of course there would be the resumption of air travel. Of course the airlines would continue to operate. It was a great time to get in and buy calls. Over the next 2 weeks, the prices came back to their correct valuations. It simply was a big scare. A VERY big scare.

So that's what I do. I make predictions on the QQQ, SPY, and while I look at all stocks in the market, I will also be focusing in on GOOG and AAPL. I trade against the market, and I tend on average to make about 100-150% a month. You might want to read that last line again. Yes, I do this because contrarians make so much money because we leverage everyone else who is going the wrong way because they are following the crowd.

Well thank you very much for following me, and if you think anyone else in the office would be interested in this site, let them know. You can just tell them its the www.1045report.com and they can find this blog off of that. Have yourselves a good trading day, I see that you guys are up 22 points.

Until later today here in the United States,

Tradinginsider