Active-Trader - Ripping Higher

Welcome back, Active Traders and wealth builders.

Sometimes what's going on in the markets overshadows any individual stock stories.  That was certainly the case this past week with broad market indices SP-500, Dow Jones Industrials and Russell 2000 scoring new all-time closing highs.  What is even more telling is how this was achieved and the daily chart to the left tells the story.

After peaking back on May 22, 2013 markets went into a corrective pattern as identified back in my post on June 2, Signs of Distribution.  At that point, we started taking profits on many individual stock positions to book some good gains for the year.  You can't go broke taking profits as the saying goes.

Counting the daily bars, there were 22 days in the corrective pattern which started on after the peak on 5/22/2013 and bottomed on 6/24/2013. Since then its been almost straight up, and we recovered the entire distance of that pullback (which took 22 bars) in only 13 daily bars - and 8 of those bars were on opening gaps to the upside!   And you know from prior blog posts that when the right side of a correction recovers faster than the time it took to go down, that means the market is straining to move higher and nearly always goes on to make further highs.

Another interesting story to be told is the chart to the right.  This one compares the year-to-date performance of the Dow Jones Industrial s versus the SPY (SP-500 in yellow),  QQQ (Nasdaq 100 in blue) and IWM (Russell 2000 in white).  This shows the broader market Russell 2000 is clearly outperforming the Nasdaq 100, SP-500 and Russell 2000.    This speaks to the broad nature of this rally and also tells me that on dips I should no longer buy DIA, but instead should be buying IWM, SPY, QQQ - anything but DIA contrary to what I noted in last week's post DIA on Dips.

Moving our focus from broader markets to individual stocks, we had awesome performances in individual stocks Tesla (TSLA) and Netflix (NFLX) this past week.  I was able to participate in both stocks along with the other members in the Simpler Options trading room.   I continue to learn a lot from John Carter, Henry Gambell and the other traders in the room.

One important thing I learned from John Carter is that trading nearly 100% a mental game.  Put another way, the state of your mind at the time of the trade determines your actions.  Are you in a state of fear that you will lose money?  Are you more concerned with making money or not losing money?  My behavior is clearly being dictated by my psychology, and my TradeStation account tells the story where I have:

• 31K in cash buying power
• 62K in overnight marginable buying power
• 124K in intra-day buying power for marginable securities

Yet given all that, I won't put on a trade which risks more than $300 or 1% of the account!  I clearly have some mental hang-ups which are preventing me from realizing my full potential as a trader.  So let's just say I have some serious work to so in the area of trader psychology.

Enjoy your weekend.