That’s what happened to me when I took a graduate-level class with one of my mentors in technical analysis, Dr. Hank Pruden.

For those of you who are unfamiliar with the term “technical analysis,” it refers to analyzing a market or an individual asset using charts.

I was expecting to learn about trend lines, bullish and bearish patterns, cycle analysis, etc., in this class. But instead, we dove deep into the psychology of the markets, trying to understand what motivates investors and traders to act the way they do.

Today, there are many institutions that teach behavioral finance, but at the time, it was groundbreaking stuff.

One of the most important concepts is that investors’ behaviors repeat time and time again. There are no guarantees, of course, and every situation will be a little different, but humans can be fairly predictable.

We typically fear the worst just before things get better… and we expect things will always be this good just before they get worse.

This course taught me a number of key ideas that I still use nearly three decades later. Here are a few of the most impactful ones.

Confirmation Bias

Confirmation bias occurs when you focus only on the information that confirms your beliefs. People do this with their political beliefs all the time, and the media plays into it by exclusively giving them information that aligns with their point of view.

In the markets, an investor may believe that a stock is a great buy because they see the company’s products everywhere… which may cause them to ignore the fact that the stock has been in a downtrend all year. Despite the market signaling that things are not great for the company, the investor buys the stock anyway.

Overconfidence

I’d bet almost everyone reading this believes they’re a better-than-average driver. In college, I had an argument with a friend about what a horrible driver he was. “How many cars have you totaled?” I asked. (The number was three in the previous four years.) “Yeah, but they were all somebody else’s fault!” he exclaimed.

Enough said.

When things are going well in the markets, investors often confuse a bull market with their own genius and think they’ll know when to get out. Of course, it doesn’t work out that way.

The Herd Effect

How many times have you been looking for a place to eat and walked past an empty restaurant to wait at a crowded one?

We’ve seen this time and again in investing, like when people piled into dot-com stocks, crypto, cannabis stocks, and meme stocks because that’s what everyone else was doing.

Being aware of these concepts can help you question your own decision making and ensure that you’re thinking critically about each buy and sell.

You can also use stock charts to test your opinion.

For example, in early 2021, AMC Entertainment Holdings (NYSE: AMC), the poster child for meme stocks, took off. The stock moved from the $20s (split-adjusted) to over $600 in a few months.

And keep in mind, this was not some new tech company or a biotech that had a cure for cancer. AMC is a movie theater chain. And you’ll recall that in 2021, no one was going to the movies. So it made no sense that everyone was piling into the stock.

Let’s say you were on Reddit or some other message board reading about AMC and all the reasons it should go higher. One look at the parabolic move on the chart would tell you to be very careful… because when the stock stopped going higher, it was likely going to reverse quickly.

Technical analysis is simply the visual representation of investors’ emotions. The more aware you are of those emotions and behaviors and how to interpret them, the better a trader and investor you’re going to be.

The post 3 Lessons Every Investor Should Know appeared first on Wealthy Retirement.

That’s what happened to me when I took a graduate-level class with one of my mentors in technical analysis, Dr. Hank Pruden.

For those of you who are unfamiliar with the term “technical analysis,” it refers to analyzing a market or an individual asset using charts.

I was expecting to learn about trend lines, bullish and bearish patterns, cycle analysis, etc., in this class. But instead, we dove deep into the psychology of the markets, trying to understand what motivates investors and traders to act the way they do.

Today, there are many institutions that teach behavioral finance, but at the time, it was groundbreaking stuff.

One of the most important concepts is that investors’ behaviors repeat time and time again. There are no guarantees, of course, and every situation will be a little different, but humans can be fairly predictable.

We typically fear the worst just before things get better… and we expect things will always be this good just before they get worse.

This course taught me a number of key ideas that I still use nearly three decades later. Here are a few of the most impactful ones.

Confirmation Bias

Confirmation bias occurs when you focus only on the information that confirms your beliefs. People do this with their political beliefs all the time, and the media plays into it by exclusively giving them information that aligns with their point of view.

In the markets, an investor may believe that a stock is a great buy because they see the company’s products everywhere… which may cause them to ignore the fact that the stock has been in a downtrend all year. Despite the market signaling that things are not great for the company, the investor buys the stock anyway.

Overconfidence

I’d bet almost everyone reading this believes they’re a better-than-average driver. In college, I had an argument with a friend about what a horrible driver he was. “How many cars have you totaled?” I asked. (The number was three in the previous four years.) “Yeah, but they were all somebody else’s fault!” he exclaimed.

Enough said.

When things are going well in the markets, investors often confuse a bull market with their own genius and think they’ll know when to get out. Of course, it doesn’t work out that way.

The Herd Effect

How many times have you been looking for a place to eat and walked past an empty restaurant to wait at a crowded one?

We’ve seen this time and again in investing, like when people piled into dot-com stocks, crypto, cannabis stocks and meme stocks because that’s what everyone else was doing.

Being aware of these concepts can help you question your own decision making and ensure that you’re thinking critically about each buy and sell.

You can also use stock charts to test your opinion.

For example, in early 2021, AMC Entertainment Holdings (NYSE: AMC), the poster child for meme stocks, took off. The stock moved from the $20s (split-adjusted) to over $600 in a few months.

And keep in mind, this was not some new tech company or a biotech that had a cure for cancer. AMC is a movie theater chain. And you’ll recall that in 2021, no one was going to the movies. So it made no sense that everyone was piling into the stock.

Let’s say you were on Reddit or some other message board reading about AMC and all the reasons it should go higher. One look at the parabolic move on the chart would tell you to be very careful… because when the stock stopped going higher, it was likely going to reverse quickly.

Technical analysis is simply the visual representation of investors’ emotions. The more aware you are of those emotions and behaviors and how to interpret them, the better a trader and investor you’re going to be.

Good investing,

Marc

P.S. Who was your Dr. Pruden? Share the story of your most influential teacher or mentor in the comments section below.

The post How to Read a Stock Chart (and Sharpen Your Thinking) appeared first on Wealthy Retirement.

That’s why my friend Nate Bear, Lead Technical Tactician at Monument Traders Alliance, is cutting through the noise in today’s guest article.

He’s showing readers a dead-simple mental strategy that will help them avoid the most common mistakes beginner traders make. This advice alone will put you ahead of the vast majority of traders.

Plus, Nate has a way for you to see actual trades being made with confidence in real time – for FREE.

He’s inviting you to join his Daily Profits Live chat room for one whole week… no credit card required.

Upon joining, you’ll get real-time access to Nate’s live trading platform. Chief Income Strategist Marc Lichtenfeld and I were incredibly impressed when we heard about the success of his trading system. He used it to grow $37,000 into $2.7 million in verified trading profits in just four years.

Nate’s “Open House” starts this Monday, October 16. Go here to get on the guest list to join Nate LIVE – at no charge!

– Rachel Gearhart, Publisher

Have you ever watched Bob Ross paint?

It’s almost like watching a monk meditate. It’s soothing… and it makes you feel like all is right in the world.

It’s the exact opposite of what many people think of when they picture Wall Street.

They might picture a man in a suit yelling into his phone in a New York City trading pit…

Or an angsty, Ivy League-educated trust fund baby who knows all the insider info and thinks his presence is a gift to everyone around him.

These stereotypes might make for some good Hollywood movies. But the reality is…

You don’t have to be a “typical” Wall Street pit trader or insider to make winning trades in the market.

Case in point… I’ve never commuted to Manhattan to trade on Wall Street. I started my trading career while working in construction. I’d make trades on my phone in the parking lot as I waited to pick my kids up from school.

I once hit a 111% winner while sitting in front of the school in a line of minivans.

What a time to be alive, right?

This style of trading wound up generating $2.7 million in verified trading profits from a $37,000 account in just four years.

Learning to trade has been an amazing journey.

But I must say… I wasn’t an overnight success.

Like any trader who’s just starting out, I still had to hone my skills. But I was able to do it my way… without sacrificing my family-first lifestyle.

Along the way, I learned that being calm is everything when it comes to trading. Some of my Daily Profits Live members have even referred to my personality as “Bob Ross-like.”

It’s funny to hear myself described that way, since I’m far from a famous painter.

But it’s also funny because I wasn’t always this calm.

In fact, when I first started, I blew up a $15,000 account.

Yep. $15K… gone. Just like that.

I was so upset after that trade that I punched a hole in my wall.

Can you imagine Bob Ross punching his easel?!

That was the moment I knew I had to alter my approach.

I sought help from a community of experienced traders, and it made all the difference. I started trading with less emotion, and I even created my own system for finding winning trades.

Fast-forward to eight years later, and I’m still using these Bob Ross-like, serenity-inducing principles in my trading.

Here are some of my greatest trading lessons… in Bob Ross’ words.

No. 1: “If you want sad things, watch the news.”

Bob Ross once said, “We want happy paintings. Happy paintings. If you want sad things, watch the news.”

Turns out he was right about the “watch the news” part.

When I first started trading, I’d believe whatever I heard in the mainstream media. I’d get all excited when I heard people talking about the next hot stock… and I’d start to panic when they talked about the economy going under.

Later, I discovered…

This low-quality information was just a form of manipulation. After I’d made my trades on the stocks that the media had hyped up, the savvier traders would sell off, leaving me with a loss.

Ouch.

The lesson here is to never blindly trust the news when you’re making your trades.

No. 2: “It’s hard to see things when you’re too close. Take a step back and look.”

I cover this concept almost every day in Daily Profits Live.

Beginner investors have to understand…

The market doesn’t care how much you like a certain company.

The movements of the market are nothing more than reactions to a complex string of information.

How many times have you made a trade only for it to start heading south?

You’re losing money, but you tell yourself, “If I can just hang on for a little while longer, I think I’ll be able to break even.”

It’s at this moment that the warning sirens should start going off in your head.

This is when you need to “take a step back and look.”

You’re not thinking clearly because you’re hoping the stock will do what you want… You’re ignoring all logic and reason, which are telling you that the trade is cooked.

The takeaway? Listen to those sirens – they’re telling you it’s time to get out of the trade.

No. 3: “Anytime you learn, you gain.”

I know it sounds cliché, but all my losing trades can be traced back to not following the advice of those first two quotes.

As you continue on your trading journey, understand that you’ll probably still be susceptible to fear and greed. But the main lesson is to stay true to the fundamentals that have led to consistent winning trades over long periods of time.

And each time you take a loss (and you will take losses – no trader is perfect), it’s just another opportunity to learn and get better for next time.

Your Chance to Join Me LIVE!

Bob Ross’ way of looking at the world is surprisingly relevant to trading.

To let you see how I use these principles in my daily trading, I’m opening the door to my Daily Profits Live trading chat room for FREE for a limited time.

Seriously… I’m inviting you to join me for ONE ENTIRE WEEK of LIVE trading recommendations.

You won’t need your credit card – there won’t be any surprise charges or annoying paywalls.

My first-ever Daily Profits Live Open House is taking place October 16-20 from 9 a.m. to 4 p.m. ET each day.

Go here to unlock your FREE WEEK OF ACCESS.

I can’t wait to see you there!

The post 3 Trading Tips From a World-Famous Painter appeared first on Wealthy Retirement.

– Mable Buchanan, Assistant Managing Editor

Ask any quant investor what his greatest edge is, and he’ll probably tell you it’s his computer’s ability to process vast amounts of data. That, in turn, allows the computer to identify patterns invisible to the human eye.

I disagree.

I’ve spent the past year immersed in the world of quant investing, so I appreciate the power of computers to churn through reams of information.

But I don’t believe that raw computing power is quant investing’s most significant edge.

Instead, its edge is in offering a solution to the one problem even the most complicated mathematical algorithms can’t solve: the problem of human psychology.

Let me explain…

Investing’s Psychology Problem

When you begin your journey as a professional investor, you focus on a handful of skills.

You analyze financial statements. You learn to value companies. You master the Black-Scholes option pricing model.

Then one day, you have an epiphany.

You realize that successful investing is more about mentality than math.

The “current state of the market” is one giant Rorschach test.

What we perceive says more about us than what is really there. And chances are, our perceptions are distorted.

Modern finance has only started to acknowledge the importance of psychology through “behavioral finance.”

And that’s thanks only to Daniel Kahneman, the Princeton psychologist who won the Nobel Prize in economics in 2002. (Kahneman never took a single course in economics in his life.)

Behavioral finance takes the assumptions of modern finance and unceremoniously chucks them out the window.

Behavioral finance is all about the psychology of decision making.

Its fundamental insight is this: Humans suffer from a wide range of cognitive biases.

Any of these alone make it extremely difficult to win in the markets. Together, they make it almost impossible.

See if you recognize yourself in any of these…

Confirmation bias: You tend to search for new information in a way that confirms your preconceptions. You shoehorn every market behavior into your preexisting model of the world. You shut out interpretations that contradict your existing beliefs.

Need-to-understand bias: You must have an explanation of what is going on with the markets. You blame the market’s behavior on Trump, the Democrats, the coronavirus. The list of possible reasons is endless. You create what Nassim Taleb has called a “narrative fallacy.”

Need-to-be-right bias: You’re smarter than the average bear. You have a Wharton MBA and 25 years of experience. You have conducted a thorough analysis, and you have an answer. You have a deep-seated need to be right. You don’t realize that successful investing has next to nothing to do with the quality of your analysis. It has everything to do with how you handle being wrong.

Degree of freedom bias: You are a trader with an engineering background. You’ve designed the perfect trading system. You’ve back-tested it and confirm you would have made 1,200% last year. You believe the more rules your system has and the more “degrees of freedom” you incorporate, the better the results. You fall into the trap of over-optimization.

What do all these biases have in common?

They reject homo economicus – that perfectly rational actor you meet in every finance textbook. Yet, like Bigfoot, he has never been found in real life.

Quant Investing and Excising Human Psychology

I designed a trading system for the very first investment fund I managed in the 1990s. I had to load an IBM PC with the historical data from a CD.

It was only then that I could screen stocks, generate charts and back-test systems based on historical data. The combination of data and computing power allowed me to uncover anomalies in the market invisible to others.

Today, I have access to far more complicated software. These are programs that PhDs at the world’s top hedge funds would have spent tens of thousands of hours developing 20 years ago.

And last year, I began developing several “swing trading” systems to profit from short-term moves in the market.

These “swing trading” systems target double- and even triple-digit gains over two to 10 days.

The results so far have been better than I expected.

For example, the systems triggered dozens of buy signals on Friday, February 28. This was at the very time when human traders were fleeing the market.

Sure enough, the U.S. stock market rallied more than 5% on March 2, the very next trading day.

The lesson?

Quant systems aren’t human. They are not driven by fear, greed or any other emotion. Removing human psychology from the investment equation is the real edge of quant investing.

Good investing,

Nicholas

The post Quant Investing’s Biggest Edge appeared first on Wealthy Retirement.

When you invest in Target, you want the numbers to be strong. Maybe, if you’re altruistic, you’re hoping that growing earnings will lead to more hiring and a stronger economy.

Investing in biotech is different. The financials matter, but in many cases, the companies are early stage and don’t have any products on the market yet, so revenue and earnings are nonexistent.

Some biotech investors end up investing in a company because they’re familiar with the disease the company is trying to treat. Someone whose loved one has lung cancer may discover a drug being studied for the disease and invest in the company developing it.

That person has a much stronger emotional tie to the stock than someone who hopes Target beats analysts’ estimates.

Even without such a direct connection, it’s a pretty callous person who cares about only the stock going up and doesn’t root for the drug to work in order to help patients.

As a result, investors often build emotional ties to their biotech stocks. It’s not unusual for investors to be “in love” with one of their stocks, but it’s especially common in biotech.

Who doesn’t want to see the success of a drug that helps patients with rare diseases, cancer, pediatric illnesses and many other conditions?

It’s never a good idea to let your emotions control your decision-making when it comes to investing. It’s the easiest way to lose money because you’re hesitant to sell and cut your losses even when the evidence points to the drug not working or the stock going lower.

Here are a few tips to make sure you don’t let your emotions get the best of you when investing in biotech.

You’re Not Part of the Solution

Unless you’re buying an IPO and the money is going directly to the company for research (see why I don’t like biotech IPOs here), you’re not actually helping the company forward its studies.

When you buy shares of a biotech (or any other stock) on the open market, you’re buying the shares from a third party. The money you pay goes into its pocket, not the company’s.

It’s true that you’re now a part owner of the company, but as a tiny shareholder, you will have no impact on the company’s ability to treat a disease or develop drugs.

Forget Hope

That sounds bleak, I know, but the hope that a company will cure a dreaded disease, especially one that affects someone you care about, is a terrible reason to make an investment. You need to evaluate a company based on its merits, not on what you hope it can do for a loved one.

You wouldn’t buy shares of Target because you hope its fall apparel selection will make someone you know look good. Don’t buy a biotech stock hoping that its drug will help someone you know.

Set a Stop

At The Oxford Club, we recommend setting 25% trailing stops. That way, your loss won’t be too big if things don’t work out, especially if you follow our position sizing guidelines of never investing more than 4% of your capital in one position. And when you raise the stop as the stock rises, you can ensure you’ll get out with a profit if things reverse.

Most importantly, a stop is set without emotion. And the trade to sell is also executed without emotion. It eliminates the natural tendency to justify why you should hang on to the stock rather than sell it.

All this being said, I know of no other sector with the potential for the huge gains that biotech has. Many people have been made millionaires by owning stocks like Regeneron (Nasdaq: REGN), Celgene (Nasdaq: CELG) and AbbVie (NYSE: ABBV).

And quick explosive gains can be made in smaller biotech names. For example, last week, Viking Therapeutics (Nasdaq: VKTX) spiked 87% in one day on positive clinical trial data. Last month, Affimed (Nasdaq: AFMD) soared as much as 256% after signing a partnership agreement with Genentech.

The biotech sector can be a very lucrative place to invest. Just be sure when you’re entering a position in a biotech stock that you are doing so because you have a valid reason to expect a profit, not because you want so badly for it to succeed.

Good investing,

Marc

The post The Easiest Way to Lose Money appeared first on Wealthy Retirement.