Brightstar Blog

 General Interest

Selling the Rips

When stock prices fall, many people speak of “buying the dips.” This phrase is trader slang for purchasing stocks on sale. Market participants attempt to lower the risk of stock acquisition by choosing moments when stocks are likely to rise after purchase occurs.

A critical component of dip-buying is often overlooked, however. What is it? Dips occur in upward-moving markets. In other words, uptrends are the things that give dips their power. After purchases are made, price movement carries stocks higher into profitability.

So, what do profitable traders do in downward-moving markets? They “sell the rips.” This phrase refers to selling stocks after short-term retracements (price rises) occur. In contrast with dip-buying where general market movement is upward, rip selling takes place in downtrends.

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Markets Don’t Kill, Stupidity Does

In 1940, renowned speculator Jesse Livermore (1877-1940) published his only book on stock trading. The very first sentence in the book candidly reminds us that trading is a very tantalizing endeavor, but one that can empty bank accounts if market participants do not know what they are doing.

“The game of speculation is the most uniformly fascinating game in the world. But it is not a game for the stupid, the mentally lazy, the man of inferior emotional balance, or for the get-rich-quick adventurer. They will die poor (Livermore, 1940/2001, p. 1).”

Livermore’s words reverberate powerfully in the story of one new trader who was never able to fulfill his potential.

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Straight Talk about the Role of Money

In daily life, money is something that we earn, save, and spend. No surprise there. Did you know, however, that the flow of money through the economy significantly impacts the cost of goods and services, interest rates, and market performance? Before your eyes glaze over with the thought that this stuff is for economists only, I invite you to take a few moments and read on. Here, I offer a very simple explanation of how money works, how it impacts us where we live, and how to limit losses in a market downtrend.

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Why the Yield Curve Matters

Many people view interest rates as avenues for making or losing money. They think of the amount of money that they will receive from a financial institution for sitting on their cash. Or, they ponder the amount that they will pay to a lender for securing a loan. Seldom do they realize that these same rates are a powerful indicator of future economic conditions that will impact their lives in a much larger way.

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Benefits of Volatility

Market commentators often convey the message that volatility is a bad thing. At best, it is portrayed as a condition that resembles a common cold—something that is quite annoying, but temporary in duration. At worst, it is a type of flu that can have disastrous consequences if it persists over long periods of time. But are these characterizations really true? How can traders benefit from volatility even when others claim that it is undesirable?

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Big Money

S&P 500 Index

The S&P 500 Index ($SPX) contains 500 of the most prominent publicly-traded companies in the United States. It is widely considered to be an important measure of stock performance in general and most representative of economic direction in the country. For many investors, some portion of their retirement money follows $SPX.

How can you determine the direction of your retirement money? Learn to read the $SPX chart. To assist you with this effort, I provide an analysis and forecast of market direction in our monthly video series. At the very least, you will not be surprised by changes that occur in the index. You may even be able to increase profitability, if you learn to make the right moves.

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Video Market Analysis & Forecast
October 1, 2022

E-Mini Dow Day Trading

NEW RELEASE

The definitive guide for E-mini Dow futures trading!
Available only through us

Preview and Purchase

Reader Comment

“I have been trading and/or associated with the markets for over 30 years. Brad Stych has compiled a great book to educate traders on how to navigate trading. I highly recommend it.”

K.H.
Idaho Falls, ID

Why I Day Trade the E-mini Dow

Among those who day trade stock index futures, the E-mini Dow futures market is one of the best kept secrets on Wall Street. Many E-mini participants trade the S&P 500 (ES), Nasdaq-100 (NQ) or Russell 2000 (RTY). For various reasons, these latter markets are not nearly as easy to trade. ES is mostly controlled by institutions which gives it a jerky institutional flavor in moving from one price level to another. NQ and RTY are noticeably volatile in a way that makes fluid participation more challenging. If you have traded these markets as I have, you know what I am talking about.

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How Long Does it Take to Learn?

As with athletes, traders may be classified as professionals or nonprofessionals. The first group is largely comprised of individuals who trade for financial firms, manage other people’s portfolios, and otherwise make their living from trading. Employers often train their own people and impose their own rules on performance. For these reasons and others, I usually prefer to work with nonprofessionals.

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 Recommended Resources

Stock Trader’s Almanac 2022

STA 1For several decades, Stock Trader’s Almanac (STA) has endeavored to provide “the necessary tools to invest successfully (Hirsch & Mistal, 2022, p. 7)” It was originally created by Yale Hirsch and reflects his lifelong interest in market history, cycles, and price patterns. His son, Jeffrey, joined the company (Hirsch Holdings, Inc.) in 1990 and eventually became editor-in-chief with the mission of improving the content and application of the almanac.

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Ensign Charting Software

ensign2Since 1981, company founder Howard Arrington and his team have sought to create versatile products through unusual responsiveness to customer input. As a result, Ensign charting software is updated with great frequency (several times each month) and contains a large number of useful features that are difficult to find elsewhere. The price for leasing the software is attractive. Rather than increasing prices every year, Ensign maintains a reasonable and stable price structure while offering a high-quality product.

StockCharts.com

StockChartslogo 1StockCharts.com offers numerous features designed to assist traders and investors with making sound market decisions. It combines technical tools, education, and commentary in a massive website. Charts and scanners are particularly useful for active traders. They enable easy identification and analysis of trades. The user may develop code for scans and use it to locate trades based upon personal preference. Several free features are available. Many more desirable features are provided for a modest fee.

Biography
The New Era of the Booming 1920s and Its Aftermath
The Biography of Visionary Financial Writer Richard W. Schabacker

by George A. Schade, Jr.

RichSchIn this day and age, history is often viewed as a collection of facts and figures rather than what it really is — a rearview look at real people who struggled to make sense of their times and offer contributions to the world.

George Schade’s journey through the brief but meaningful life of Richard W. Schabacker (1899-1935) offers readers a rare look at the evolution of financial markets in the early part of the twentieth century. During his employment at Forbes magazine (1925-1935), Schabacker became financial editor and wrote numerous articles that educated subscribers. As Schade points out, Schabacker’s keen insights and obvious writing ability enabled him to spread the word about the importance of technical trading.

A lesser-known fact about Schabacker is that he published a correspondence course in 1932 that covered chart formations and trading tactics. After his death, brother-in-law Robert Edwards collaborated with Albert Kimball to present much of the course in book form. This 1937 text later served as the basis for Part I of Technical Analysis of Stock Trends published by Edwards and McGee in 1948. Today, Edwards and McGee is widely regarded as the early Bible of technical analysis. Historically, though, it is clear that a substantial portion of this Bible came from Schabacker.

Schade’s book is detailed and well-researched. It is a must read for market participants who desire to trace the roots of technical analysis and trading.