Here’s part two of the interview notes for Jay Oliveira’s podcast with Richard Moglen. For a concise version of these notes, click here.
He explains the technical side of things and how to lose your ego and stop fighting the market, plus many more nuggets of information you will find valuable when building your Canslim trading strategy.
Mike Webster Expectation Breakers
Mike Webster’s concept of “expectation breakers” is relevant when a stock is not acting as expected. It’s essential to get out or adjust the stop-loss or take a profit if this happens.
Having an expectation of a stock’s performance does not mean it will happen, but it’s crucial to have an idea of what the stock should do and adjust accordingly if it’s missing the mark.
If a stock breaks expectations, it’s necessary to take action, such as getting out, raising the stop-loss, taking a profit, or taking a small loss.
The market is designed to fool the majority of traders, (especially new traders) and take their money, so it’s crucial to develop a personal strategy to manage risk over time. Understanding the market and developing a strategy takes time, but it’s essential to get a feel for how the market works and how your strategy performs in different market environments.
Relative strength and Market Leaders
The market is all about gathering information, and as a stock speculator, your role is to collect information and use it to make decisions based on their process.
As a trader, your view on the market can change rapidly, even within a day, and it’s essential to be adaptable and not emotionally attached to any particular stock. Emotional attachment to a stock can be a problem, especially on social media platforms like Twitter, where people may become associated with a particular stock and feel tied to it.
It’s crucial to remain objective and not get emotionally attached to any stock, allowing yourself to observe the market and make decisions based on the information available.
A trader should be able to trade their plan based on the information they gather, and if the market is coming out of a correction, they should look for setups and be prepared to buy or take losses if the first breakout doesn’t work.
Market Feedback
Learn to spot market feedback and your trading will improve dramatically. If a you are watching ten stocks basing and eight of them fail on the breakout, the price action is telling you that the market isn’t favourable to this style of trading, right not.
Breakouts aren’t working, and the ones that do work don’t work for long. It’s essential to take the losses and reassess the market, as the next breakout may not work either, indicating the market is not ready.
After gathering enough information, a trader can decide to sit out or buy back, and it may be necessary to buy pullbacks instead, as the market is not in a breakout phase.
Traders need to gather information and trade their plan based on what the market is telling them, and be prepared to change their opinion quickly if market conditions change. A trader’s feelings and opinions can change rapidly, and it’s essential to be able to adapt to these changes, as the market can reverse quickly.
Being able to change your opinion quickly is not what people are typically programmed to do, but it’s essential for success in the stock market, where being “wishy-washy” can actually save money.
Losing the Ego
Removing ego is crucial in trading, as it allows traders to be more objective and adapt to changing market conditions, rather than trying to be right or predict the market.
Twitter can exacerbate the problem of ego in trading, as people like to make calls and predict the market, but it’s essential to focus on the present price action. Losing the ego is a critical aspect of trading that is not discussed enough, and it’s essential for traders to be able to let go.
Men, in particular, often struggle with getting their ego hurt. Jiu Jitsu helps to overcome this by showing that even the toughest individuals can be defeated. It can be beneficial in developing humility, as it teaches individuals to accept and learn from defeat, regardless of their physical strength or fighting background.
The experience of being humbled in Jiu Jitsu can be applied to other areas of life, such as trading in the markets, where humility is also essential for success. The markets have the power to humble individuals as well, recognizing this can help traders approach the market with a more humble mindset.
Don’t argue with the market
Many people argue with the market, claiming it is wrong, which can lead to significant financial losses.
It is essential to consider the market as the primary indicator, rather than relying solely on secondary indicators. The market is a forward-looking indicator that reflects the economy and looks ahead weeks to months in advance.
It is vital to recognize and correct mistakes quickly, rather than staying wrong and risking further losses.
Stops on a closing basis or intraday basis 47:25
The decision to honour stops on an intraday or closing basis depends on the overall market, with hard stops often being used, but also considering the market’s orderliness and volume.
If the market is acting orderly and pulling back on low volume, stops may be allowed to play out for the morning.
Hard stops are often set 10-20 cents below a moving average, or at the low of the day if a stock shakes out below it.
In cases of a change in the market or a sixth distribution day, stops may not be waited on until the end of the day, especially if a stock sells off on volume.
The decision to cut a position before it reaches the hard stop may be made, and if the market recovers, re-entry may be considered using the low of the day as a new stop.
Developing a personal strategy for using stops is important, as some people prefer not to use hard stops, but they can be beneficial in certain situations.
Time and experience in the markets can help develop a feel for when something is off, allowing for more informed decisions about stops and position management.
Growth stocks recovering: Character change
Sometimes individual stocks recover and show strength before the general market does. Growth names acting differently from the overall market is a sign, these insights should be noted as it could be telling you a new bull trend is starting.
This divergence between individual stocks and the overall market is an opportunity to build positions, as these stocks tend to take off with power once the broad market gets going.
Follow the market leaders
Understanding market trends and how they form is important, it often starts with market leaders showing relative strength before the market itself shows strength. Following market leaders can provide valuable insights into the market’s direction and potential future movements.
Gaining experience and getting a feel for the market is crucial in becoming a successful trader, and following market leaders can be a key part of this process.
Tight weekly closes, timeframes and outperformance
Tight weekly closes at the bottom of a base indicate that funds are supporting the stock, which is a crucial tell for traders. Studying charts, particularly weekly charts, can help identify flaws and patterns, as discussed in William O’Neill’s book.
Weekly, daily, and monthly charts are useful for analysing stocks, with the weekly chart being a favourite for identifying patterns such as bull flags. A bull flag on the monthly chart can be a sign of a potential breakout, especially after a significant move up.
Fundamentally, a breakout year, as described by Minervini, is a year with significant earnings growth, such as a tenfold increase in two years. The stock’s growth prospects and its position in a leading group can also be important factors to consider. The stock’s industry and peer group, including well-known names, can also influence its performance and attractiveness to traders.
Earnings, Sales Growth, Estimates, ROE, Funds
Key factors to consider when evaluating a stock include accelerating revenue growth, earnings per share (EPS) acceleration, and a high return on equity (ROE) of 17% or higher, as mentioned in the book “How to Make Money in Stocks”.
A desirable stock should demonstrate significant revenue growth over several periods.
Accelerating EPS growth is also important, with a goal of achieving triple-digit growth for multiple quarters.
A high ROE of 20% or higher is a positive indicator, as it suggests the company is generating strong profits from shareholders’ equity.
Increasing institutional ownership, such as a tripling of ownership in a year, can be a bullish sign.
Stocks with strong tailwinds, such as those in countries undergoing significant changes, can present opportunities for growth.
The stock chart can provide valuable information about a company’s performance and potential, with a strong chart being a key factor in making investment decisions.
Buying Pullbacks
Buying pullbacks involves waiting for a stock to push up off a support level, and managing risk in this circumstance can be determined by the strength of the stock’s bounce off that level.
A stock’s strength can be gauged by its ability to hold support at a specific level, such as the 21-day moving average, and if it fails to get support there, it may be necessary to wait and observe before making a purchase.
If a stock pulls back to the 21-day moving average and receives support, a buy order can be placed, and the entry point can be between the 21 and 50-day moving averages. If a stock pulls back to the 21-day moving average but fails to receive support, it may shake out under that level before bouncing back, and this can be an opportunity to buy.
A five-minute chart can be used to analyse the stock’s setup and determine a good entry point, and this technique was learned from Gil Morales’ website. The five-minute chart is only used for determining the entry point and has no bearing on how the stock is traded after that, with the goal of getting the tightest entry possible.
When to wait for the true standard pivot
When a stock acts strangely, it’s best to wait for a traditional pivot, as some stocks may chop on early entries, especially IPOs, which can be unpredictable.
Stocks that have been down for a certain period, such as 21 days, may be a good buy, but it’s essential to consider the overall market context before making a decision.
If the market isn’t strong, it may be wise to wait for a clearer signal before entering a trade, as the lack of confidence in the market can lead to getting chopped up. The strength of the market can influence trading decisions, and if other stocks are showing similar action, it may be a good idea to get in early.
When a stock finally breaks through a significant level, it can be a sign that it’s going to move, and it’s essential to be prepared to take advantage of the opportunity.
Managing risk is crucial, and it’s essential to adjust the size of the trade based on the market conditions, with the option to increase the size if the market is stronger.
Sister stocks showing strength
Sister stocks showing strength in the same group is a key indicator, as it can confirm the strength of a leader in that group. A stock showing huge strength, particularly one in the second stage of a base, can be an exciting opportunity for investment.
Advice for traders to shorten their learning curves
To shorten the learning curve and achieve profitability and consistency as quickly as possible, new traders should study past winners, which involves looking at past charts to get a feel for market patterns, as everything happening in the market today has happened before, including bubbles and trends in various assets such as stocks and crypto.
This process takes time, and it’s essential to be patient and enjoy the process, as it can take years to achieve success, with the example given being 20 years of dedication and perseverance to reach the goal of trading your own money and living your desired lifestyle.
Having a passion for something and keeping it in the back of one’s mind while putting in the work can make anything possible, and it’s essential to be patient and not have a rigid plan for life, as it can lead to stress and impatience.
Life is unpredictable, and sometimes it’s necessary to go with the flow and not have a set plan, as the worst thing one can do is have a plan and be inflexible. It’s essential to be patient and put in the work, regardless of age, as 48 is still considered young, and there’s still time to achieve goals and gain life experience.
Having a side job can help take the stress off trading, as it provides a separate source of income and allows for a simpler life with fewer expenses, enabling one to keep money in the market and grow capital without stress.
Living a simple life with few expenses and having a side job can provide the freedom to pursue one’s passions without stress, and it’s essential to do what one loves every day, regardless of what others think.
Taking one’s time and not rushing into trading or forcing trades is crucial, as it’s a lifetime process that requires patience and dedication.
Becoming a millionaire may take time, and it’s not uncommon for people to achieve this milestone in their 50s, at which point they can start compounding their wealth at a higher rate, potentially becoming multi-millionaires before the age of 60.
Most people don’t become millionaires until their 50s, and it’s essential to focus on doing what you love, studying, working hard, and understanding that down times are part of the process.
It’s crucial to lose your ego, put in the work, and not compare yourself to others, as everyone has their own process and timeline for success.
Mark Minervini’s success, with a 175% gain this year, is an example of what can be achieved with dedication and hard work, but it’s essential to focus on your own process and not compare yourself to others.
Jay Oliveira emphasizes the importance of learning from mistakes, having your own process, and not caring what others think, as these are key takeaways for achieving success.
He can be reached on Twitter, where he shares his journal and process, but notes that everything he posts is for informational purposes only and not recommendations.
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