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Written by Tyler Bollhorn & Michael Campbell
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Tuesday, 12 April 2011 01:00 |
Michael Campbell: I'm looking at the oil price hitting $113 and talking to many analysts they feel that that's strictly an anticipatory move, whether it's speculation or not, about supply disruptions. There's been a huge premium built into that price now because there is certainly enough oil running around the world in stock piles. A great example of there's monster money to be made if you get on the right side of those kind of shorter term moves. Of course you can play the market in both directions, the Canadian dollar would be another one that jumps right out at me.
Tyler Bollhorn: You know one of the problems with oil is I think people perceive that it's a temporary bit of strength because of the political unrest in the Middle East and Libya, and there's a real lack of commitment to positions. So what happens is people do hit and run trades you know buy it sell it two days later. There isn’t a real commitment in those trades, and I think sometimes traders make a mistake in trying to make sense of what's going on and say I'm scared to trade those oil stocks because it makes no fundamental sense why oil should be at this price, and so. What everyone should remember however is that the market is not always driven by fundamentals. We don’t know if there is a big hedge fund that was, really short the oil market, is getting squeezed and having to buy back their position.
That drove oil to its highs a few years ago, a hedge fund that got squeezed. Ultimately I just look to do what the market tells me to do, and the market is telling me to be in these commodity stocks and stick with them. They are doing well but you got to be pretty short term oriented right now.
Michael Campbell: In your courses you're teaching people entry points and exit points based on how the stock is trading. Also letting the market tell you what to do?
Tyler Bollhorn: That's right, I don’t care what companies are doing I care about what people think about what companies are doing and that shows up in market action. So my job is to determine if the buyers winning the war or are the sellers winning. I look for very specific set ups that I know are effective and that’s what I teach people to do too.. But you know it's a set of rules that works regardless of what the market is doing because there's always opportunity somewhere.
Michael Campbell: It just feels to me that people are wondering about exit points right now because of the moves that you described earlier. You know in March of '09 I'm proud to say Money Talks on that weekend we featured guests on Money Talks and on moneytalks.net saying we felt the bottom of that downward move from the credit crisis was over. It certainly has been as strong as strong a move as anybody could have dreamt of. But now certain people are saying it's pretty extended. I see silver over $40, gold over $1,460, oil at $113, so just tell us the kind of things you'd look at to say at least on the short term maybe that move is over? Canadian dollar is another one given its the third time in history trading at this level.
Tyler Bollhorn: The Canadian dollar has run up a little too fast and I think it's due for a pullback. But my outlook for the Canadian dollar is that it probably continues higher, I mean it's in an upward trend and the trend hasn’t been broken. I don’t try to predict when things will pop out I wait for them to come back to a stop loss point. I'm always laddering up my stop loss point too because as much as I can sit there, try to be smart and tell you all the reasons why oil doesn’t deserve to be at this height, at the end of the day the stock market is not predictable. And so what I'm trying to do is adjust, I'll constantly chase the price higher with a trailing stop using a very specific set of rules I teach. When the market pulls back then I get out, and what that allows me to do is stick with strong trends and take the emotion out of it. I would say that the exit decision is probably the most emotional part of it, people are always worried about leaving money on the table, or whether they should take a loss or not. I've got some very simple rules so that you take the emotion out of it, and over ten trades it's very effective. It may not get you out at the high on one trade, but over ten trades it's going to maximize your profitability.
Michael Campbell: My experience Tyler, is anybody who's looking to be that smart at the tops or the bottoms and leaving no money on the table, they are just asking to lose in the end. I'm speaking from personal experience when I say that, I did learn the hard way. It's sort of a fool's game to try and put in the top or the bottom as opposed to more focusing on making money.
Tyler Bollhorn: I always remind people that when you're looking at the stock market you're looking at the opinions of thousands and thousands of people. I don’t believe no matter how smart I might think I am I'm not smarter than thousands and thousands of people, especially when some of those people are trading with huge amounts of money. Even if they are making silly decisions in the market, the sheer fact that they have millions if not billions of dollars to work with, they are just going to roll over anyone that tries to get in their way. So you can't second guess the message of the market, you have to listen to what the market tells you, you have to know how to read or how to listen to it and that's what I teach people to do. Just don’t try to be smarter than the crowd because you'll lose.
Michael Campbell: Our Victor Adair is always saying this and I love it that he brings it to our audiences attention. He says he has his opinion and then he's got the market's opinion and that's the one that makes money. He also says the market can go in a direction far longer than it makes sense. We saw that with the internet bubble, we've seen it with currencies. You know the credit crisis produced a huge opportunity because the market went down too far. That's the nature of the beast and you sort of went quickly over it. But the whole point is to get your personal emotions out so you can take advantage of somebody else's emotional outburst in the market.
Tyler Bollhorn: That's right and I think to do that you have to have a plan, you have to have a very rational set of rules that you've tested and developed and you just follow that strategy, and as long as that strategy works you keep following the rules. Take the emotion out of it, avoid trying to be smart. Every time I've tried to be smart it's cost me money. I'm happy to just be a follower and because being a follower of the money of is, in my mind, the simplest way to make money in the stock market.
So many times I've been right, but if your timing is wrong you can get crushed. I say just listen to the message of the market and it's not hard. The beauty of it is that it's such a simple way to do things, you know I can analyze any stock in three seconds. If I want to look into what the company does and their management and all that stuff that takes hours.
Michael Campbell: What is that the biggest emotion based mistake people make?
Tyler Bollhorn: I think that the world of behavioral finance is getting a lot of attention these days because people are recognizing that it's about people. The thing that makes us people and not computers is the fact that we have emotion, and emotion causes us to make mistakes. You know and one of the things I do for my students is I encourage them to send me their stock picks and tell me the trade that they are making. Let's say I look at ten of their trades that they've done, I can instantly tell what their emotional hang ups are. You know whether they are hanging onto their losers or selling their winners too early or taking too much risk. There's all these different things that people do, they are very easy to spot and very predictable. And no one's alike, I mean everyone's got different things but we all have the same five or six hang ups that you have to get over if you are going to be successful in the market.
Michael Campbell: It's always a pleasure to talk with you, Tyler you are going to be in Calgary May 1st and May 2nd and they can go to StockScores.com to look it up. Also Tyler and StockScores.com works with Disnat who is Canada's top rated online brokerage firm also. You can go to the moneytalks.net page and click on, on the top left hand side for Calgary May 1st and 2nd where Tyler will be teaching his course.
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