Patience, Discipline, and Psychology
Trading is more than just fundamentals and charts.
If you haven’t been patient over the last few weeks and found yourself eager to buy every dip, you’ve probably taken some painful losses.
I have been waiting to publish this article but I think after the last few weeks, it’s important to publish it now. I have received numerous messages from folks who have been crushed by this recent pullback because they were chasing the high beta growth names near highs. It’s a painful experience, but it can be a lesson if you learn from it.
For the past month in both the newsletter and subscriber chat, I’ve been emphasizing one thing: patience. I have been far less active with my trading than usual because I took note of when the the environment shifted and the risk reward dynamic flipped. Especially for many of the retail favorite stocks and assets. It was on us to recognize that shift and step back, the writing was on the wall (on the wall meaning in this newsletter). Those who didn’t take note likely gave back a chunk of the gains they worked so hard to build this year on the heels of the historic rally.
Before getting into this piece, I want to highlight the five educational articles I have posted since starting this Substack:
My plan is to release one of these each week. I’ve got a long list of topics lined up including what to look for when analyzing a companies fundamentals, combining technicals/fundamentals/thematics/narratives into a trade, the psychology of trading, how philosophy fits into the mindset of a trader, how to effectively use moving averages, identifying ideal entries during uptrends, and more. I have received very positive feedback on these pieces thus far so I suggest checking them out if you haven’t already. If there’s something specific you’d like me to cover, drop it in the comments, I read everything and I want these to be useful. The goal with this series is to build something long lasting that helps all of us trade better, think sharper, and approach the market with more discipline.
This newsletter will serve as the sixth. Patience and Discipline.
The market has been very unforgiving to anyone forcing trades or assuming that every small pullback is a can’t miss buy opportunity. I have seen endless posts on X about “buying the dip” even as the major indices were only a few % below all time highs… those loudest who were pushing that message also happened to be holding the highest beta highest risk stocks. The names that were down 25% even as the Nasdaq was down 3%. What they failed to acknowledge was the obvious question… what happens if the indices actually go lower? If speculative names and high beta growth have been crushed during a mild dip in the indices, imagine the damage if the S&P and Nasdaq pull in a but further. Now we’ve seen what happens, as the indices started to come under a bit more pressure these same names got hit even harder.
“We’ll probably look back in a month or so and say the rotation happening was obvious but many didn’t see it happening in real time. Maybe we did here in this article, only time will tell...”
That we did.
On the bright side, these high beta names are already leading the downside and historically when true reversals come the fundamentally strongest names that fall first are often the ones that lead off the bottom. If you stay patient and let the selling exhaust itself, you will have both the mental and fiscal capital to participate on the recovery. We will be ready.