Market Analysis for Jan 22nd, 2021

A Baby Doesn’t Give Up After A Thousand Tries…Trading/Investing Needs Time To Work

There’s so much great information that are free/relatively cheap and also excessive noise/useless/fraudulent information in the trading/investing world that I’m a part of. Needless to say, many dirt bags ruin many novices' chances of being financially independent when they have entered the greatest and toughest game on Earth. Making new traders quit easily after they churned through their accounts following useless, dishonest or irrelevant info. At least, the SEC has taken action on some of these companies/individuals, but often times it's after millions of dollars have been spent/wasted.

Many people go into trading/investing like trying to win big money quickly. It’s normal given the volatility and ‘easy’ ability to make a lot or lose a lot of money in such a short period of time via stock/stock options/futures…etc

 A typical bachelor degree takes an average person 3-4 years to complete and for specialized fields you need at least 6-8 years in total. Trading is more of the same if you don’t have a solid foundation; you need your ass kicked first in order to really develop and learn to learn. Playing with the markets will get you mentally, physically and monetarily abused and punished. The first is the hardest to overcome and recover from, the rest you could heal bruises and cuts and make more money working a job.

 Fun fact, a typical baby takes a few thousand attempts of falling over in order to build enough muscles to withstand its own weight by itself. Then, the reinforcement of trying again and again takes place as the child learns to walk.

For trading/investing, don’t get ahead of yourself if you’re in your first, second or third year. Just make a realistic roadmap of trying to learn and get better week over week. This is worth repeating.

Just know that timeframe alignment lesson#1 is probably the most important skill/strategy that you could run. As discussed, I wish I knew this concept and was able to apply it properly when I started over a decade ago. Then, you can develop many frameworks and strategies with this very basic module. https://www.elliottwavetrader.net/trading-room/thread/4427727

The timeframe alignment lesson snippet is basically summed up as this: if a particular instrument has a one directional movement that is aligned on the daily+weekly+monthly charts. Then, congrats because you already have a winning proposition and all you need to do is find out what the best risk vs reward on its next setup/opportunity on a lower timeframe to capture some profits. 

Obviously, you’re not trying to bat 100% win rate. If you think you can bat 100% in the long run, try flipping a legitimate two faced coin and tell me how. You can just win 50% of the time and then this golden goose setup (key higher timeframes aligning to same single direction) and keep riding and piggybacking off of that established price action structure/context/momentum until you hit at least 2-3x your risk. many times it lands on tails.

It’s as simple as that, but very hard to do because we are humans. It’s going to be a long journey so make sure your approach has health and longevity in mind. Very similar to how to coast during the regular season of NBA and then you step up your game during playoffs. There will be coasting periods trading/investing in the markets just as there will be a mean reversion/drawndown phase to your portfolio/strategy. You stick with what you’re great at and stay in your lane before you add more tools/skills into your arsenal so you could potentially be jack of all trades. (you do not need to in the market, but there are those that could trade anything that moves and provide great risk to reward opportunities) eg. what’s the better bang for my buck here, ES or NQ futures today given the market context…etc

If you are struggling now, don’t give up. Take a break first to clear your mind. Reassess and start building a solid foundation as it will take a lot of time and effort to get rid of bad habits. Arguably, in terms of biology, we’re not designed for the greatest game on Earth as we’re humans. Wait, did you just give up because of what I said? Work on your mentality first before you rise to the occasion. Thank me later!

Ricky Wen is an analyst at ElliottWaveTrader.net, where he writes a nightly market column and hosts the ES Trade Alerts premium subscription service.