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Gamblers Fallacy, do you have it?

I was listening to a very interesting podcast done by Freakonomics radio

The episode was about gamblers fallacy, which if you haven’t heard of it before is basically the miss held belief that if you toss a coin as heads 5 times in a row then the 6th time surely has to be a tails.

The reality is that each coin toss has an equal opportunity of being either heads or tails aka 50/50

Equally true is that you can toss 10 heads in a row and over short term data points (anything under 1000) then it is likely to be a short term trend or anomaly.

The show was also talking about the bias you give based on the previous experience as to what the next outcome will be.

Overall it was extremely interesting.

As a trader you must have experienced this early on in your career or maybe you still experience it now…

Personally, Ive gone to great lengths to ensure that I follow my strategy and not fall into this fallacy trap and the many faces which it wears.

After 22-yrs you can be sure that there is plenty of data behind my trading to ensure that what I do isn’t a “blip”

One of the realisations you need to have is to understand that trading is not a 50/50 outcome. When you get that it is actually a 33.3% chance of price going up down OR sideways you will start to come closer to the trading realities and of course seeing positive returns on your trading simply because you are getting a handle on realistic expectations.

…and remember each trade has an equal chance of going up down or sideways, wouldnt you be better off using a strategy that has a positive expectancy outcome based around these realities?

Just a thought for you to consider.

 


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The best thing since… 1912?

Which sounds better?

The best thing since the invention of sliced bread

Or

The best thing since since 1912

I caught myself saying since “sliced bread was invented” a few times recently and I wondered how much of a compliment that saying actual was

Well it turns out that sliced bread was officially invented or was at least sold as sliced bread was around 1912 depending on your sources [thanks wikipedia]

But then how impressive is sliced bread even shortly after the turn of the 20th century?

There may be more impressive things – well.. [exasperated sigh] – and Im going to go out on a limb here an use the word – Definitely

There was Definitely more impressive things invented around 1912 and Most Definitely has been since then

With that said and done…

I can with confidence say that my stock alert service is without a doubt, and is quite possibly because it is one of the many things that was invented after sliced bread that could also be better than sliced bread

Simply because using it has allowed me to buy all the sliced bread I can handle for the last decade and a half and coming in at a cost of little more than two loaves a day its a bargain

I know which side of the bread my butter is on – do you..?

 

See you on the inside…

Happy Trading
Phil Newton

 


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Forex Is dead – That was so last decade

I had an interesting question in the mail bag earlier in the week and I thought that it would make for interesting reading for you too

As you read it consider that I spent 12-yrs primarily day trading Forex so I do speak with a smidgen of authority on the subject of Forex

So, from the mail bag came this…

Q – I’m really enjoying the signals and trading stocks and can see a lot more longevity and consistency in your approach to the markets- I wondered what your thoughts are on forex as retail traders as opposed to trading stocks in this way?

My reply

A – I think we should consider ourselves traders or investors and not bracket or blinker ourselves into being forex or futures or stock traders

I will trade forex if I think it offers a good trade as well as oil, indexes commodities and obviously stocks

I have always flippantly said that if my time and resources are better spent flipping beanie bears on ebay like it was the 90’s again – then that is what I would be doing

I am a capitalist and an entrepreneur first – in that Im looking for the best opportunity for my time and resources

That is not in forex for you, me or anyone else at the moment and hasnt been for several years – back in 02 ahead of the forex explosion was the time to be in to forex and Im more focused on what will happen in the next decade rather than looking back on what was good last decade

If I did that then I would have gotten slaughtered in 02 trying to trade the tech stock bubble or what was left of it

The currency / tech bubble is over – so whats next?

What is next is for the economic house of cards to tumble especially emphasised in the US markets with a now 7yr bull market with barely a down tick to satisfy the bears and recession watchers – we have skipped 2 economic cycles so far and when this bear pulls into port there will be a case of the clap like you have never seen before

So bear market and recession on the horizon = increased volatility
options are priced using volatility and I anticipate becoming a net seller of options when the tide turns

That is all for now

 

Happy Trading
Phil Newton

 


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Financial Farming – Grow yourself Fat Profit

Are you a hunter or a farmer..?

What most people dont know about me is that I grew up on a farm actually growing stuff

First early potatoes – Spring or summer leeks – I used to love stripping rhubarb skins as they were quite tart – tomatoes lefts you literally green fingered after pruning – eventually my folks moved into garden variety plants

I suppose somewhere along the way I learnt something about farming and planning for the future compared to hunting and hoping for the now

As humans we have supposedly evolved from hunter gathers into farming which is meant to be a far superior way of living

The logic these days can roll over into many other areas and in this case the finance markets

I frequently ask people which would you rather be

  • A farmer
  • A hunter

Being a hunter sounds good but the reality is that if you dont find anything you go hungry

But

If you are a farmer and you grow a field of produce – something is likely to grow that you can eat

AND – this is the best bit

If you dont feel like it or something prevents you from getting out and maintaining the farm – you can still wonder down and pull a few bits for dinner

Whereas if you dont go hunting you dont eat

With trading and investing I think you would have to agree that you would rather be the financial farmer and put all you stock seeds in the financial field of a trading account

Watch the green shoots of profits rise up through the the fertile trend set up and as soon as you see a ripe profit (target) you pluck that luscious profit right out of your field and bank it

This way you are only managing profits because lets face it pulling rotten vegetables out the ground or pulling the seeds back out the ground shortly after you planted them simply doesnt make any sense

You need to be more like a farmer and plant your profit seeds and them them grow – only pulling them out the ground when they are ripe with profits

Which is exactly what I do and what I teach all my students to do – just last week those of you on my newsletter alerts would have pulled 2 more ripe ‘uns – the rest of the profit field has also started to grow too and this week is looking like the crops will come good

Do you want my next stock planting alert? It goes out tomorrow – just prior to the markets opening

See you on the inside…

Happy Trading
Phil Newton

 


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Every traders 2nd worst nightmare

Nearly every traders nightmare is being stopped out of a trade – it happens to nearly everyone (except me of course but more on that later)

But, every traders 2nd worst nightmare is just around the corner, always lurking and always ready to twist the knife and maybe wiggle and jiggle it around for good measure

In fact this is likely worse than being stopped out for most inexperienced traders & active investors

What is it that could make your blood boil more than being stopped out?

Well it is being stopped out AND then watching price do what you thought it was going to do only without you participating in the move

THAT is a traders 2nd worst nightmare

Is this your “I was right dam it!” trade trade?

The only reason your not on it is that you were stopped out – maybe a little too tight on your risk control and stop placements

How many times have you had that “sick to the bottom of your stomach feeling” when price tickles your stop loss and then turns around and does the happy dance to your targets without you?

…and this is one dark experience that my group of insiders and I have not experienced for some years

Don’t mistake me for never having a loss – but I have not been “stopped out” for many years all because we utilise smart trading & investment practices

One now that I hope you will embrace now that you are about to be made aware of this boogyman slayer of method

The simple solution is to use stock options to express your trade instead of outright stock purchase, spread betting or CFD’s

Stock options, if they are new to you, are similar to a deposit (not accurate but good enough if this is the first time you are hearing about them)

Like a deposit you can NEVER lose more than the deposit amount no matter how bad things get – BUT should we be right with the trade idea we get a proportional benefit and the deposit can increase in value along with the stock price moving favourably

So you see you will never need to be stopped out again as your risk is controlled by the amount you use for your “deposit” to reserve or control say 100 shares

…because we know that we will never get stopped out again we get to wait and see if the stock price comes back to being favourable – which VERY OFTEN does with my methods

This is a very unique way of trading and allows you to turn a bad trade into a winner should you be right generally speaking with the stock (and most of the time we are all right) but sometimes you get the fine tuning of your entry slightly off kilter – which is why you may get stopped out in the first place

Now you will never be stopped out and you get to see truly if your stock selection does what you thought it was going to do and profit from it if you are right

Pretty cool huh!

That is in part what I send out in y daily alerts – which stocks Im trading – the options Im using as well as where I believe the stock will get to

I just need to then sit back and see if price gets there

…and if you want me to send you, your own daily alerts then follow the link below and start getting them in your inbox before the markets next open

Thats all folks
Happy Trading
Phil Newton

 


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Risk:Reward Natzi’s can go choke themselves

Risk & Reward ratios are a load of old potatoes

Perhaps it is a crock of something smelly and brown

or maybe it is nonsense…

At leat most of the time

This ratio is to be ignored – I dont use it and I dont care for it most of the time

In fact the more you risk for smaller reward the higher the theoretical probability of success you will have

Weird eh?

What would you rather have?

  1. A lower risk to reward?
  2. A higher probability of success?

I would rather have a high probability based outcome based on actual track record results than “ensure I have a good R:R ratio” like the text books say

Me: “Jeaves, pass me my retching bucket!”

On its own this ratio is useless and should be treated with the contempt it deserves

In fact – just ignore it completely because you will get more done without stressing over if your trade has a 1:5 or 1:3 risk to reward ratio

Because it is all theoretical based on mostly intangible guesstimates

I can also move the risk and reward sliders up and down to “get a figure I like” to appease the R:R Natzi’s

When you’re trading with real money in a real account come back to me and we can have a grown up conversation about it but until then keep those theoretic views to yourself

If you are making money consistently and seeing good results based on solid time tested research which has proven to be realistically attained with actual trading results then does it matter what the risk reward ratio is?

As someone who has been doing this for 22-yrs and made a living from it full time – maybe I do have a view that could be better than the theoretical armchair warriors out there – just sayin’

Hopefully you can get my playful tone here

Risk reward is but one very small facet – and as far as Im concerned irrelevant facet – to a successful trading strategy

Of course the real secret is a fine balance of risk reward AND probability which is what I focus on

That is all for now – End rant

Thats all folks
Happy Trading
Phil Newton

 


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I think therefore I’m wrong

The more I think about my trades the more I bugger things up

The less I think and keep it simple as to 1 of 6 possible outcomes

For example,

If the chart is going up then you likely better off being bullish on that chart

It is all too easy to think you have a good trade idea – but if you wait for your entry criteria you will know you have a good trade idea and you can replicate that process to generate more good trade in the future

…which is what all good traders & investors do

Stop thinking (too much) and start trading (your plan)

Thats all folks
Happy Trading
Phil Newton

 


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Investment advice from Paula Abdul

You know that Paula Abdul song, the one with the cartoon cat?

There is a part of the song which aptly describes how to trade.

Interestingly it is some of the best investment advice you could take and from the least likely place in this instance

The lyrics go something like this;

“…Two steps forward and one step back…”

Something – something – more mindless drivel…

“…because opposites attract”

Ok it’s a tenuous link at best but it is something I’ve used for years to describe what a trend looks like that is easy to picture in your minds eye even if you have never looked at a chart previously

Price needs to move forward more than it moves back on a regular basis to be an uptrend – just like Paula sang.

When you get to the next floor or level there are usually flat parts like a floor or ceiling – price very often runs the stairs back and forth between these platforms because opposites attract

Nice one Paula!

This is at its most basic what Im looking for when finding stocks to trade today – which way is the stock moving? If its going two steps up for every one step down – you have to, I mean HAVE to call an uptrend

It is that simple

You do not always need the fancy tools and the latest wizzbang gizmo based on 11th century mathematics

It makes me gag sometimes the horse crap you get told

If prices are overall pointing upwards then you should likely be bullish or vies versa

If you cant tell whats going on – skip that stock and move on – there is always another stock to look at

This is what I spend my 60-mins-a-day doing – find a stock to trade with one of the 6 methods I teach and then make sure it is the best stock that I can find today to trade

Then I send that stock out (before the markets open usually) to the premium alert members

 

See you on the inside…

Happy Trading
Phil Newton

 


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Road Rage Trading

Some jerk nearly ran me off the road earlier, all because he wanted to squeeze in between me and the car in front when there was clearly not enough space just so that he didnt have to slow down while overtaking a parked car in his lane of the duel carriage way

I could see him set himself up for this act of stupidity because like a self aware and responsible driver I am I make myself aware of what is going on in around and ahead of me and not simply inside of the steel box of combustable doom

Needless to say I leaned on the horn continuously the moment he came within 2inches of my wing mirror which by the way was the same moment he decided to put his turn indicator on – [like thanks for the heads up!?!]

Im quite certain I ruined his day as he swerved, braked, accelerated, braked again and generally weaved and bobbed while still trying to effectively put a square peg in a round hole by attempting to pull in front of me

I of course won – I was in right – although closing my eyes briefly also helped significantly

Consequently this jerk got a serious case of road rage and tailgated me for a while before the finger waging of his wife caused a move back to normal and much safer driving – I think he pulled over to shed a tear or two

While I am completely amused by the whole situation it did get me thinking

How many road rage type trades do you end up placing when things do not go quite your way?

If you do everything you are supposed to do you will most likely eliminate the rage

Just like if road rage dude had indicated I may well have slowed down to “let him in” because that is the safe responsible thing to have done and not to try and wedge in as he attempted to do

That is planning and if you plan ahead for your trades too you will avoid road rage or trade rage and many forms of collisions in a mobile Molotov

I send out my daily plan for my trades well in advance of the market opening and if you want me to send you my plan too you can view the details of the premium alerts by clicking here

What are you waiting for…?

Consider this your personal invitation to start receiving YOUR alerts every weekday

It is exactly like having your own personal research team – only better

Get the next Alert – Take Action Today

…It is reassuringly inexpensive

See you on the inside…

Happy Trading
Phil Newton

 


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Be wrong & still make 29.2% ROC

This is one of the things about doing what I do the way that I do it

You can be wrong – at least initially – and still get paid

QCOM was one of those trades for me where I did everything I could to ensure that my premium alert members saw a reasonably fast profit

But sometimes you just have to wait

This stock move a little way in my favour initially THEN spend the better part of a couple of weeks dithering on the wrong side of OK

Now this is in fact just fine as part of the methodology I teach and use myself for your alerts – the timing looked good in real time but didnt work out straight away

Traditionally this is where you get stopped out and start blaming everyone and your broker for screwing you

With these methods we just sit patiently and wait to be right – as long as my view point hasnt changed we usually have around 35-40 days to “manage the position more effectively”

QCOM – I was wrong and still got paid 29.2% ROC

As you can see on the image, we also closed HCA for a 26.5% ROC

Oh and the best part is that I spend the afternoon eating fish taco’s and supping cocktails because I refuse to be chained to the desk trading – and neither should you be…

Perhaps – my alerts will help you – perhaps they wont – but after 22-yrs of trading – I think, nay Im certain I’ll be doing what ever I want to do after my 60-mins a day trading and off to do something more interesting

If you sign up – before midnight today – and email me the secret phrase “Fish Tacos” (which is what I have just enjoyed with my wife yum) – I’ll hop on a mini training session to help you get up and running with the alerts

What are you waiting for…?

Consider this your personal invitation to start receiving my alerts every weekday – and eat tacos whenever you want

It is exactly like having your own personal research team – only better

 

Happy Trading
Phil Newton

 


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