Tweet compilation: Strategy & Mindset
alphacharts.substack.com
This blog post is a collection all of my tweets related to my strategy and mindset. It’s quick snippets of info that serve as good reminders for me. I expect to add to this post in the future.
Basics:
Trend following:
- Don't need to know what'll happen in the future
- Doesn't take much time to implement
- Reduces risk, increases return
- Minimizes emotions, stress
Price & patience is all you need:
1. Identify leaders (price)
2. Wait for bases to build (patience)
3. Buy the breakout (price)
4. Ride the trend (patience)
5. Exit on breakdown (price)
6. Repeat
Horizontal lines on charts minimize biases
Weekly/monthly candles minimize noise
Aligning with trend gives risk management
Aligning with momentum gives alpha
Right mindset:
Thank goodness I'm not wasting energy bottom fishing messy sectors (gold, crypto, etc). Thoughts & prayers for those that are.
Lots of people seem to think doubling your money every year in stocks is doable. If so, you would turn $10K into $11 trillion in 30yrs.
Imagine being one of those people citing ‘high valuations’ and redrawing a new, steeper resistance trendline each week.
What that famous hedge fund manager or twitter guru is saying or doing means absolutely nothing. Learn to think for yourself, and keep it simple.
Fundamentalists look for quality businesses, technicians look for quality setups.
The market is an endless opportunity stream. Never a need to force low quality trades.
3 trading lessons
1) Simplicity. Follow leaders (don't fight the trend) and draw horizontal lines on their weekly charts.
2) Patience. You only need 1-3 trades to have a great year. These are setups that leap off the page at you. Rest of time, OK to be in a regular boring portfolio waiting.
3) Framing. Great question to ask: "What things would I be doing to deliberately lose money trading? How many of those mistakes am I currently doing?"
I have no idea which trade/asset will be my biggest winner. All I know is
- Follow the leaders (momentum)
- Above line good (trend)
Strong uptrends + tight consolidations = strong fundamentals & institutional ownership
Erratic trends with large drawdowns = opposite.
Over long periods, commodities have chopped sideways while quality businesses trend higher. The latter is a bet on society, while the former is a bet against it.
Wrong approach:
"It's manipulated"
"My model predicts that..."
"Heard on CNBC..."
"But what if the Fed..."
Right approach:
Follow the leaders
"Above line good, below line bad"
Keep it simple:
Never understood why ppl deliberately make their lives more difficult by
- Focusing on ultra short-term
- Following news, seeking opinions
- Doing complex analysis
- Trading trendless markets when clean, strong uptrends exist
Sentiment, seasonality, breadth, valuations can all take a backseat to price action.
A stock is undervalued and underowned if it’s in an uptrend.
Who cares if it's a head & shoulders, cup & handle, or flying squirrel?
Above line = good; below line = bad.
Relative strength = good; weakness = bad.
No need to make things esoteric.
In markets, you don't want to be too...
- dumb (chasing penny cryptos after a large move)
- smart (complex econometric models)
A lot of my friends - with no interest in markets - have done well simply holding stocks, real estate.
You can also read a 2-part summary of my trading approach here:
Important Disclaimer: This blog is for educational purposes only. I am not a financial advisor and nothing I post is investment advice. The securities I discuss are considered highly risky so do your own due diligence.