Mastering Smart Investor Strategies

Get Your Personal Financial Budget Statement Here:

https://s3.us-central-1.wasabisys.com/40webinars/personal-financial-statement.xlsx

BriarCliff Crest is an exclusive, invite-only opportunity for select traders looking to elevate their strategies. The only way to secure a chance for an invitation is to email the contact info provided on this podcast.

Show Notes

Introduction

• Podcast Setup: Drink, Smoke, Stock Podcast begins with anticipation for questions.
• Drinks of Choice:
• Antonio: Drinking coffee.
• Otis: Drinking water.
• Deaunna: Drinking vanilla Coke.
• Topic: The focus is on trading, particularly day trading (getting in and out of positions once certain levels are hit).

Otis’ Question to Grace and Deanna

• Otis' Query: What is your thought process before you enter a stock position?
• Specifics: Interested in knowing if they rely on charts or feelings when deciding to purchase stocks.
• Focus on Entry: What criteria do they use before hitting “buy”?

Deaunna’s Response

• AI Assistance:
• Deaunna mentioned using an AI (ChatGPT) to create a list of stock suggestions.
• She asked the AI for stocks under $100 and has been following its recommendations.
• Thought Process:
• Her thought process before picking a stock is based on daily spending habits. If she spends money on a product or service daily, she considers its stock.
• She hasn’t actively started trading yet due to school finals.
• Paper Trading:
• Deanna has experience with paper trading from almost 10 years ago.
• She mentioned needing to retrain her brain after revisiting trading concepts such as candle charts.
• Recognizes that she needs to unlearn old habits and relearn new ones to avoid past emotional responses.

Otis’ Follow-up on Trading Mindset

• Otis' Inquiry:
• He wanted to understand what goes through Deanna’s mind when choosing stocks.
• He emphasized the importance of understanding the market trends (highs/lows of the day/week) before deciding to buy.
• Otis’ Trading Process:
• Stocks have cyclical patterns (up and down).
• To make a profit, you should buy low and sell high.
• Stock Selection: Choose stocks that have room to grow, meaning they need to be positioned for upward movement.
• Timeframes for Analysis:
• Start with a 4-hour chart.
• Then move to 1-hour, 30-minutes, and finally make the entry based on a 5-minute chart.
• Volume Monitoring: He checks the volume to see how much money is flowing in and out of the stock. The more money flowing in, the better.

Stop Loss Strategy

• Setting Stop Loss:
• Otis always moves his stop loss above the entry point to ensure he stays in profit, even if the stock goes sideways and stops him out.
• Outcome: Even when the market stops him out, he still makes a profit by moving his stop loss.

Antonio’s Question: Room for Stock Growth

• Antonio’s Inquiry:
• Asked Otis how to recognize if a stock has room to grow.
• He emphasized the need to identify this before entering a position.

Otis' Technical Response on Stock Growth

• Stock Growth Identification:
• Look at the stock’s chart to ensure it’s not at its peak.
• Analyze the market using timeframes and volume data to see if there is room for the stock to move upwards.
• Method:
• Use the 52-week high as a benchmark.
• Track stock movement on different timeframes (4-hour, 1-hour, 5-minute) to identify growth potential.
• Observe volume to ensure strong momentum.

Deaunna’s Candid Comment

• Deaunna’s Reaction:
• Expressed that she only knows she’s losing money at the moment.
• This lighthearted comment shows her ongoing learning process in trading.
• Key Takeaways:
• Antonio and Otis highlighted the importance of understanding stock trends and volume before entering positions.
• The conversation blended practical trading strategies with candid experiences from Grace and Deanna as they navigate their trading journeys.

Narrating the Trading Screen

• Account Balance: $99,965.90.
• Equity: Less than the account balance, unclear.
• P&L (Profit & Loss): Negative $34.10, indicating a small loss.
• Reaction: Grace mentions not understanding much, but she knows the loss is not good.
• Emotional Response: Grace feels unsettled by the loss, despite the small amount.

Antonio’s Response to the Loss

• Lighthearted Comment: Antonio finds it amusing that Grace is upset over a $34 loss.
• Perspective:
• Losing any amount can feel unsettling, no matter the total account balance.
• Antonio initially thought Grace was dealing with a much larger loss based on how she described it.

Grace’s Expectation

• Desire for Perfection: Grace wants to win 100% of the time, even though she knows it's not realistic.
• Discomfort with Red:
• She dislikes seeing red (negative) numbers in her account.
• She expresses confusion about understanding certain stocks.

Transition to Tesla Stock

• Grace’s Stock Choices: Grace is exploring different stocks, including Ford and Tesla.
• Trading with Otis' Guidance:
• Grace followed Otis’ advice, looking at the 1-minute chart for Tesla.
• Tesla was in the green (positive) at the time, and the stock price was fluctuating.

Antonio’s Trading Insight

• Missed Opportunity: Antonio points out that if Grace had bought Tesla at 8:34 AM, she would have seen a significant price jump.
• Volume Indicator:
• Antonio explains that the long green volume bar indicates heavy buying, signaling a lot of market activity.
• Tesla's positive movement was linked to strong buying activity, likely driven by news or other factors.

Otis' Technical Analysis on Tesla

• Tesla Earnings Report:
• Tesla reported quarterly earnings 15% above expectations.
• This positive news likely fueled the recent price movement in the stock.
• Market Direction:
• Tesla's stock movement was trending down in the 4-hour timeframe.
• Otis emphasizes that Tesla is not suitable for a long position at the moment.
• Head and Shoulders Pattern: Otis identifies this classic technical pattern in Tesla’s chart, suggesting a potential price reversal.

Explaining Stock Trends and Movements

• Past Highs and Current Lows:
• Otis explains that investors who bought Tesla stock low and sold high are exiting their positions.
• As a result, Tesla’s price is dropping after a peak in early October.
• Stop Loss Strategy:
• Successful traders likely moved their stop losses up, protecting profits as the stock fell.
• Despite the drop, the stock’s earnings report created a temporary spike in the price.

Gap Analysis

• Gap Formation:
• Otis explains the concept of price gaps, which occur when stocks jump significantly without trading in between.
• He predicts that the gap in Tesla's price will eventually fill, meaning the stock will likely come back down before resuming its upward trend.

Grace Navigating the Trading View Platform

• Progress in Learning:
• Grace has become more comfortable navigating trading charts.
• While she’s still learning how to interpret the data, she has made strides in using TradingView and analyzing charts.

Volume and News Consideration

• Volume Indicators:
• Otis emphasizes the importance of volume when trading, as it reflects the flow of money into or out of a stock.
• Grace mentions that certain interface elements (news and updates) are obstructing her view of the volume, making it harder to analyze.
• News vs. Technical Analysis:
• Antonio prefers to avoid relying heavily on news, focusing more on technical analysis and market patterns.
• Focus on Technicals: The group discussed the importance of understanding technical patterns like volume, stop losses, and trends.
• Learning and Development: Grace is still in the learning phase, but her ability to navigate charts shows progress.

Discussion on Missed Trading Opportunities

• Wishing for Prior Knowledge:
• Participants express regret for not acting sooner on the trading opportunity.
• Earnings Reports:
• Earnings reports are unpredictable, often leading to significant price movements.
• Caution is advised because trades based on earnings can quickly go against predictions.

Tesla Stock Movement Insights

• Observation of Price Jump:
• Tesla’s stock moved from $214.50 to a much higher price within 30 minutes.
• This rapid movement is typical of high-volume reactions post-earnings.

Antonio's Cautious Approach to Tesla Stock

• Fear of Entering Late:
• Antonio expresses fear of entering Tesla stock at this stage.
• Institutional Trading Philosophy:
• Professionals and great traders have already made their money.
• Antonio prefers to make profits early and sell before the masses get involved.
• Entering now would be joining the "little people" profits, which makes him uneasy.

Institutional vs. Retail Investors

• Investment Flow:
• In capitalism, financially savvy people make money first, passing opportunities down the chain to the next group of investors.
• By the time mainstream awareness kicks in, it’s often too late for big profits.

Antonio’s Risk Aversion

• Risk Management:
• Antonio would rather miss an opportunity than risk entering a trade after the smart investors have already profited.
• Mental Peace:
• He can handle missing out on potential gains but would lose sleep if he joined a trade too late and faced losses.

Otis’ Insight on Other Opportunities

• Other Stocks to Watch:
• McDonald's and Boeing are worth watching due to external events affecting their stocks:
• McDonald’s: A food-related scare (onions) could create an opportunity.
• Boeing: A strike could lead to stock volatility.

News-Based Trading Strategy

• Trading Based on News:
• Antonio’s View:
• Some traders make money by following news stories.
• Antonio prefers not to rely on news because it involves too much complexity for him.

Otis’ Example of News-Driven Investment

• Defense Industry Stocks:
• Otis invested in a company that produces weapons for the Department of Defense, anticipating profits due to ongoing conflicts.
• Slow Growth:
• While the stock didn’t experience rapid movement like Tesla, it grew steadily due to ongoing demand for defense products.

Long-Term Investment Strategy Based on Events

• Nuclear Energy and AI Data Centers:
• Otis highlights potential long-term opportunities in nuclear energy and AI data centers due to rising electricity demands.
• Strategic Entry:
• It’s often too late to buy after the news breaks, but opportunities remain for those who position themselves early.

Antonio's Reflection on Smart vs. Non-Smart Investors

• Smart Investors vs. Non-Smart Investors:
• Rich Dad, Poor Dad Insight:
• Smart investors make money first by capitalizing on opportunities early, selling to less savvy investors who enter late.
• Antonio avoids becoming the non-smart investor who buys from the smart investors after profits have already been made.

Trading Strategy Takeaways

• Institutional Mindset:
• Antonio’s strategy is based on entering trades early and exiting before the less informed investors jump in.
• He focuses on being the smart investor who profits first, selling to those who come late to the opportunity.

Avoiding Emotional Trading

• Emotional Management:
• Antonio emphasizes the importance of having a mental stop-loss in addition to a technical stop-loss.
• He avoids entering trades where the opportunity has already passed, saving mental energy and reducing stress.

Otis’ Practical Trading Advice

• Limit Orders:
• Otis explains how limit orders work, allowing traders to set specific price points for entering a trade, especially when not actively watching the market.
• Retracement:
• Retracements are opportunities to set limit orders when stocks pull back before continuing upward.

Antonio's Discussion with 2J3 on Crypto

• Mentorship in Crypto:
• Antonio mentors 2J3 in trading, acknowledging 2J3’s expertise in crypto but highlighting his weaknesses in trading strategy.
• 100X Profit Strategy:
• Antonio critiques 2J3’s 100X profit approach, explaining that he would instead spread profits across multiple smaller bets to mitigate risk.

Wealth Mindset and Multitasking

• Multitasking Trap:
• Antonio explains that wealth comes from being present in the moment and mastering one opportunity at a time.
• Focused Investment:
• Wealthy people make money where they are by mastering the principles of the present, which allows them to make money in future opportunities as well.

Recap of Tesla Stock Decision

• Avoiding Tesla:
• Antonio reaffirms his decision not to enter Tesla because the smart investors have already taken their profits.
• Mental Stop-Loss:
• Antonio emphasizes the importance of making mental decisions about trades before even considering technical stop-losses.

Conclusion

• Trading Philosophy:
• Antonio’s strategy revolves around understanding whether he’s the smart investor capitalizing on an opportunity or the non-smart investor entering too late.
• Institutional Focus:
• His approach is always focused on making early profits, not chasing opportunities that have already been exploited.

Warren Buffett's Approach to Tesla Stock

• Warren Buffett's Investment Style:
• Question: Would Warren Buffett enter Tesla stock right now?
• Answer: No.
• Reason: Smart investors have already made their money in Tesla.
• Warren Buffett’s Strategy:
• Warren Buffett reads extensively and was likely aware of the earnings report well in advance.
• His knowledge and connections give him an advantage to position himself ahead of major announcements like earnings.

Why Investors Should Be Cautious About Tesla

• Grace's Loss:
• The reason for Grace's $34 loss was likely due to entering a stock that was already correcting itself.
• Lesson: Random stock entries, especially without a clear strategy, can lead to unnecessary losses.

Importance of Avoiding Random Stock Entries

• Antonio’s Advice:
• Focus: Avoid randomly entering stocks.
• Mindset: It's important to have a strategic mindset when selecting stocks, not just following emotional reactions.
• Stop entering stocks randomly: Emphasized to both Grace and Deanna to stop entering stocks without a plan.

Deanna's Understanding of Trading Timing

• Key Lesson:
• Stocks should be monitored as soon as the market opens in the morning.
• If you wait until later in the day, key opportunities may be missed.
• Question About Earnings Reports:
• Deanna’s Question: Should I be paying attention to earnings reports and trade based on that information?
• Antonio’s Response: Yes, but it depends on your trading strategy.

Trading According to Your Personality

• Otis’ Advice:
• Trade Based on Personality: Choose a strategy that suits your style.
• Earnings Reports:
• Earnings reports come out frequently, and it's important to know the schedules for the stocks you're trading.
• Reduce your tradable stocks to a manageable list (e.g., 10-15) and know their earnings schedules.

Position Definition & Timing

• Positions Explained:
• Otis explains that having a "position" means your money is invested in a stock.
• Avoiding Earnings Volatility:
• Avoid holding positions during earnings announcements unless it’s a long-term investment.
• Earnings reports can cause unpredictable movements in stock prices.

Grace's Emotional Trading Mistake

• Grace’s Emotional Trading:
• Grace violated the strategy by being emotional about her loss.
• Antonio's Clarification: Losses are part of the strategy, and a 30% loss is factored into the overall system.
• Grace’s Performance:
• Grace had a $100,000 account and lost $34, which is less than 1% of her total capital. This is an acceptable loss and should not cause emotional reactions.

Deanna’s Strategy Clarification

• Trading Strategy:
• Antonio’s Strategy: Focus on the first hour of the market to prepare for movements.
• Antonio’s Example: His strategy involves predicting market trends and reacting early, ensuring he is well-positioned before others catch on.

Smart Investor vs. Non-Smart Investor

• Smart Investor Behavior:
• Smart investors position themselves ahead of news, often influencing it to their advantage.
• Institutional Traders: Antonio prefers institutional trading strategies, which focus on smart money techniques.

Otis' Explanation on Pre- and Post-Market Trading

• Market Access:
• Wealthy investors like Warren Buffett have access to post-market and pre-market trading, which gives them an edge over regular traders.
• Antonio's Strategy: Prepare before the market opens because prices can move due to pre-market trading.

Key Lessons from the Discussion

• Avoid Emotional Trading:
• Do not react emotionally to market fluctuations or losses.
• Trade Based on What Works for You:
• Each trader should develop a strategy that fits their personality and risk tolerance.
• Monitor the Market Early:
• Prepare for market movements in the morning to catch the early trends.

Planning for Future Episodes

• Next Steps:
• Antonio plans to explain pre-market analysis and clarify how to execute step one of the trading strategy in the next episode.

Trading Strategy & Questions

• Otis’ Introduction:
• Otis came out strong, starting with the question: "What's your motivation for trading?"
• Focus: What’s your entry point strategy?
• Are you entering trades randomly?
• Paper Trading Setup:
• When starting with paper trading, you were set up to try picking random stocks.
• The purpose was to get comfortable with the mechanics before developing a structured strategy.

Grace's $34 Loss

• Random Entry:
• Grace lost $34 because the entry was random.
• Key Insight: The issue isn’t the loss of $34; it's not knowing why the loss happened.
• Emotional Reaction:
• Antonio's example: He can handle missing out on a Tesla boom, but he can’t handle entering a stock after smart investors have already sold.

Psychological Aspect of Investing

• Mental Impact of Losses:
• Antonio cannot handle the mental stress of being “played” by entering trades after smart investors have exited.
• This leads to losing sleep and constantly thinking about the missed opportunity or wrong decision.

Understanding How Markets Work

• GameStop, Rocket, and Robinhood:
• Example: Robinhood gives out free stocks, but they are often "shorted" stocks designed to lose.
• Explanation: If you can’t choose your stock, it’s likely from a list of underperforming assets.

Managing Emotional Trading

• Emotional vs. Rational Thinking:
• Reference to Rich Dad, Poor Dad: Use your emotions to think, but don't think with your emotions.
• Fear and greed are the two primary emotions that affect trading decisions.
• Carlos’ Advice: Embrace the emotion, understand why you’re feeling it, and use that insight to think rationally.

Changing Mindset During Trading

• Before the Episode:
• Deanna had a mindset of “I lost all my money.”
• After learning more, the mindset shifted to wanting to study longer before entering another position.
• Problem with Studying Too Long:
• Otis’ Insight: Studying too long before entering a position can lead to missed opportunities.
• Proverb: "Study long, study wrong." This cautious approach causes people to miss the best entry points.

Revenge Trading

• After Losing Money:
• "Revenge Trading" occurs when traders attempt to win back their losses by placing more trades, often leading to further losses.
• Lesson: Chasing trades is like gambling. The more you try to "win back" lost money, the more likely you are to lose.

Antonio’s Strategy to Control Ego

• System Design:
• Antonio's trading system is designed to prevent his ego from taking control.
• Focus: His system forces discipline and prevents impulsive, emotionally-driven decisions.

Clarifying Trading Terms: Long vs. Short

• Long Position:
• Holding a stock expecting it to go up in value over time.
• Antonio trusts long-term investments in real estate more than stocks.
• Short Position:
• Expecting the stock to lose value, benefiting from its decline.

Trading One Position at a Time

• One Position Rule:
• Otis and Antonio recommend focusing on one position at a time, even if you plan to make multiple trades.
• Reason: Managing multiple positions can lead to confusion and unnecessary risk.

Managing Multiple Positions

• Grace's Current Positions:
• Grace has multiple positions, including NVIDIA, Microsoft, Apple, and Ford.
• Otis’ Advice: Focus on managing one position at a time, setting stop losses and take profits.

Antonio’s Approach to Long Positions

• Long-Term Nervousness:
• Antonio gets nervous when holding a position for more than an hour.
• He prefers to quickly enter and exit trades, relying on short-term cycles to achieve his desired outcomes.

Conclusion

• Key Takeaway:
• The system is designed to reduce emotional decision-making and impulsive trades.
• By following the "one position at a time" rule and managing entries carefully, losses are limited, and the strategy is more controlled.