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My Trading Experience and Goal

Hello, my name is Diego Flores and I am a sophomore at Chico State. I am currently a business major and I’m always looking for ways to sharpen my skillsets in the business environment. I firmly believe one of the most crucial skills is knowing how to invest, which is what encouraged me to invest in the Stock Market. I have been trading since May 2020 and still consider myself an amateur trader. I began with a minimum of $500.00, which is arguably a good amount to begin with. Before I began investing my money I researched about terminology, chart patterns, etc. It is smart to research any hobby you want to dive into, so you have an idea if it is for you. Today, trading remains to be a learning experience as I continue to invest. The information is so vast, so I do my best to absorb as much information and in return make it applicable.

The purpose of this blog is to provide basic information about those who are interested in investing in the stock market. Additionally, I will be talking about my wins and losses to truly show what it is like to be in the stock market. Many people want to begin investing but are misinformed that you have to be an expert to see profit. That is not true and I’ll be establishing the foundation of what has kept me going and how to internalize profits and losses. I am a stock options trader, which I will cover more about in another post. Personally, I have seen a lot of my success as a stock options trader and has allowed me to gradually build the small account I have today. Lastly, a point that is often overlooked is that investing is about patience. Many believe that profits come immediately, but it takes time and accuracy to genuinely see improvements. Apart from learnings the technical sides of investing, I will be talking about keeping our emotions on check and preventing us from making reckless investments. In some posts I might reiterate previous topics to ensure that the information is sticking.

It is never too late or too early to invest in our future financially, it is all about our willingness to learn.

Stock Trading Apps

When it comes to trading, it usually is an overwhelming experience and it can be for various reasons. As a result, many beginners don’t commit to the trading journey because they are lost trying to manage through the platform they are using. With that being said, I will be talking about some beginner trading apps that a person with no experience at all should be able to navigate and a little about the platform I use.

When I started, I had the basic understanding of what trading was. You bought a share or shares of a company you were interested in and waited to see if you would gain a profit. There are a lot more moving pieces than that, but I felt that adapting to a good platform made a big difference in trying to understand all the moving pieces. I first started with Robinhood, a simple, beginner trading app. What made it so easy to navigate was that there wasn’t many complex terms and in big text was the words, “Buy” and “Sell”. It was as simple as that. What made this app very convenient was that it was an app I could have on my phone or my computer. I was able to monitor my investments anywhere I went at any time. Moreover, what made this app so simple to use was how Robinhood set a list of my investments and the other companies that was interested in but have not put any money into. After buying or selling the stock I received a confirmation that my “order” had been accepted and that was helpful because then I knew if I surely bought in or sold.

For those who feel as if they are ready to dive into more complex apps, TD Ameritrade’s Think or Swim trading app is perfect for just that. With this application, there are more opportunities to utilize the chart patterns. When becoming a more serious trading, technical analysis a key aspect in making successful trades. In Robinhood, their charts do not provide that much information other than the price fluctuations throughout the trading day. In Think or Swim, there are more chances to use techniques such as the rising wedge any many more. This app is great for long-term investing as well as it gives you more time intervals to look at to see the moving average of a stock you may be interested in.

There multiple trading platform out there that may have features that are better than the ones I listed. I wanted to incorporate some apps that I have personally used and explain over some of the features that stood out to me when I first started up till now. If you are interested to learn more about these just click the links below!

Robinhood thinkorswim Trading Platform Suite | TD Ameritrade

How companies influence Crypto currency

Various companies support crypto currency since it has increased in value in past decade. A more notable crypto currency is Bitcoin. Currently, a singular Bitcoin is equal to $42,000 USD, which companies would happily accept.

However, recently after Tesla and Bitcoin having a well established partnership with its currency and Tesla’s product, it has come to an end. Tesla advocates for renewable energy, even their popular cars are powered by electricity. On the other hand, Bitcoin is created using fossil fuels and coals which is against what Tesla utilizes.

As a result of this news, according to nbc.news, the value of bitcoin “declined sharply” from $54,700 per Bitcoin to $46,000. Tesla being a big named brand, along with them recently choosing to accept Bitcoin to purchase their products had a huge impact on the sharp decline. There are various other companies that would accept their crypto currency, but Bitcoin took a big hit when Tesla announced they would not take it no more. Hence, how a company influenced a crypto currency price.

Not only that, but Tesla stock also was impacted by this news. According to marketwatch.com, “Tesla shares TSLA declined 1.3% in after-hours trading.” In other words Tesla stock fell from around $600 per stock to as low as $560 per stock. Considering stock option traders, that is thousands of dollars lost.

Many companies influence other stocks or crypto currencies. It is very similar to how social media influences the stock market. There are usually large investors or your everyday traders who may disagree with the route a certain company is taking. As a result, stock prices fall and it is an important piece of information to remember. With events like that occurring it is crucial to know whether or not it is the right time to trade the stock you are interested in. Keeping tabs with the news about events like Tesla’s and Bitcoin’s it save time in the technical analysis because it is transparent where the price may be heading (up or down).

Social Media’s influence in the Stock Market

Much like many topics in social media, it is only relevant or to people’s knowledge because of the attention the media gives it. Undeniably, more people have access to the mainstream media platforms than ever before and it easily draws people in. Thus, the media plays a role in what people may think is true, untrue, or what is being talked about. Social media has established itself as part of modern culture and without it, people aren’t aware of what is relevant in the outside world.

Only recently in early 2021, the stock market and crypto currency has gotten a lot of attention. Prior to this year, not many knew what those two things were, but the media has shed a lot of light on this topic due to unseen events occurring in the market. A Reddit group by the name “Wall Street Bets” (WSB) had started to discuss a stock that was reaching its end; Gamestop (GME). There was talk that GME would hit its all time low and ultimately go out of business, but WSB initiated what is known as a “short squeeze“. The stock price sky rocketed, many people were beginning to trade GME as if it was on a fire sale.

This was never seen in the investing world. When the average person thinks about the stock market, they assume it consists of complex algorithms, deep analysis, but with the massive influence WSB was giving GME, the price was simply going up because of their goal to not allow GME to go bankrupt.

As a result, WSB was getting a lot of attention by well established news sources such as New York Times, LA Times, CNN, and many more. The average person were now starting to hop on this hype train and were influencing the direction the market was going due to many being a part of this movement.

Your average trader was now making six figure profits and people who had never invested in their life were also reaping benefits of WSB and the publicity it was gaining.

Value Investing

When it comes to trading, you always want to buy stocks at the right opportunity. A lot of monitoring and research goes behind doing so. There are instances when stocks are being valued a lot less for what they are worth. A good way to understand this is when specific items go on sale. Many traders believe that stocks at some point in time are under valued for what they’re actually worth and it typically occurs very briefly.

A way to actually identify when stocks are being sold at a “discount” price is by doing a thorough financial analysis on the company of interest. That consists on researching on the companies’ revenue, quarterly earnings, business model, their fundamentals, target market, etc.

Factors such as price to earnings can be utilized to identify if the price of a stock is being undervalued. Earnings reflect the price the stock has been moving for the specific quarter. The quarter last 3 months and they occur on 4 separate occasions. Traders who are researching “Moving Average” which we discussed on a pervious post, also look into earnings reports.

Next, we have price to book, also known as “book value”. This is very similar to earnings but what is different is that traders are looking at the assets a company holds. If the company holds very high valued assets the price of the stock is lower than those assets, then the stock is being undervalued. It is important to point out that this only holds truth if the company isn’t in any large debt/bankrupt.

Lastly, traders look into the “Free cash flow” of a company. This skill goes hand and hand with basic Accounting. Essentially what free cash flow is the amount of cash remaining after paying operating expenses. It is an important factor to consider because it shows the reinforcement of readiness of a company when it comes to their financial obligation. When companies consistently have a well sum amount of cash flow after paying off expenses, it is signs of a thriving, profitable, prosperous company. Companies will have many left over to pay dividends, pay shareholders, or continue investing in future business ventures.

The way it all comes back to a cohesive manner is that doing research on the topics regarding earnings, book value, and cash flow tells you a lot about the state of the company. Traders find these value stocks before many others do because they know the company will be worth more down the line and they have the opportunity to buy the stock while it is undervalued to make a long-term profit.

Averaging Down & Moving Average Strategy

Price of a stock will inevitably fall, and in some cases we buy in when the price is too high or the stock pulls back due to news or other third party reasons. In these situations, we want to either pull out the investment and reposition for an opportunity to recuperate the loss. However, there are various strategies that can assist in decreasing the loss taken.

Averaging Down is a crucial, basic strategy a beginner should be capable of applying. For the sake of explaining this concept, I will be giving an example. Let’s say I bought 10 shares at $150 per share but the stock pulls back to $130 per share. I now want to buy 10 shares at the $130 to Average Down (1500+1300)/20 shares= $140. As a total, on average your shares are worth $140 per share. It is important to emphasize that this strategy doesn’t mean you get all your money back but minimize the loss you have taken. The scenario doesn’t require you to be invested that heavily in the $1000s range. You could have simply bought a cheaper stock and still apply this strategy.

Moving Average is an important concept to know when to enter in a stock. However, this strategy is an intensive technical analysis. The purpose of the Moving Average is to identify the resistance and supports of a certain stock you may be interested in. Additionally, you need to choose whether or not you want to utilize this in a short-term or long-term manner. When it comes to short-term, prices are far more sensitive, thus subject to change. On the other hand, long-term Moving Average may be a 100-200 day price analysis. Based off the past 100-200 trading days it averages the price fluctuations. Commonly, investors use this for long-term investments and it is an important indicator for the direction a stock may be heading.

Applying these basic concepts lay the foundation to a profitable trading career or hobby. It is crucial to state that there can’t be any success without having to put in some of the work. Gradually incorporating these new concepts will make a significant impact.

Exclusive Interview With Peter Villasista

Peter Villasista is a 19 year old successful trader that has taught me everything I know up till today. He is currently a student at California State University, San Luis Obispo studying architecture. I had the opportunity to interview him and ask him to shed some light in new topics and in some we have discussed in previous posts.

You do not have to be business major or have a business background to begin investing. What is important is the willingness to learn and being able to come back after losses. This is a point that I will always reiterate. For Peter, he has been researching about the stock market since, “The end of junior year of high school, looking into long-term investments like the S&P500.” Long-term investments are utilized to build wealth in stock market. Investing time and analysis will pay off over time, but it is easier to lose your money when trying to day trade or swing trade. Peter stated, “After doing three weeks of research on the return rate, I figured I would start with S&P500 since it had a 8% annual return rate, so I put in my first $5000 from the money I had saved from my job.” I thought this was an important piece of information who don’t know where to start looking. If there is a stock that you may be interested in, do research and do a long-term investment. You may not see the profits immediately, but the point isn’t to get rich quicker, it is to see profits.

“When did you think you were ready for short-term investments?” I asked. “Once the March sell off happened I began investing shorter term, I invested in companies like Tesla, Apple, companies with good fundamentals; established companies,” he replied. In early 2020, at the start of the pandemic the stock market was very bearish. The alarming rates of stores closing their doors and the stay at home orders caused panic, so traders sold off their investments. Peter saw this as opportunity, “to buy at the dip,” because he knew the well established tech based companies would get back up on their feet. To buy at the proper time is hard to tell, but you can see profit in front of you even if the stock market is being bearish. Find the opportunity to buy at the cheapest value possible is a great way to get into long-term investing.

Next, we discussed resources he utilized when starting and ones that he continues to use today. Peter uses resources such as, “Seeking Alpha, Trading View stock screeners.. people overlook the power of YouTube. I watch Graham Stephan, and Live Trader. They taught me to continue researching, read books, things of that nature.” Often one habit can pave a path to another habit, and that was the point Peter was trying to get across. He doesn’t stop there, but uses what other experts say and attempt to make those things applicable. It was a great point and a value any experience trader should carry.

Overall, this shows anyone can start trading at any point in their lives. Continue reaching for more information. The insights I provide only go so long, but I hope the basic information lays the foundation of further success for those who want to go into the stock market. It is a tough area to dive into, but it is not impossible.

Controlling Emotions in Stock Market

One day or another we will all make a bad play in the Stock Market. That will translate into either fear, or repulsiveness, the list can go on. It easy to feel like we are entitled to be compensated for our losses or potential gains. I have had instances where I could have made a very profitable investment, but I was clouded with fear and uncertainty. That has led me to feel like I should just jump into the investment, but I know it is a high risk play and will most likely go side ways.

Fear won’t allow us to progress, but that is typically what holds people back from investing or continuing to invest after a bad play. With the proper research, it will give you the tools to continue investing and try again. Like I have stated in previous posts, it is crucial to do the research, then invest. In some instances, we do follow through with investing but is cut short because there was big losses (vary depending on how “big” your account is”). Investing in the stock market requires a lot of mental toughness and perseverance. Like in all things in life, we fall. However, what matters the most is what you do after the setback. Do not let fear consume you and allow that experience to define who you are as a trader. It is all a learning experience, and it still remains that way for myself.

One of my most recent episodes of feeling repulsive was the GameStop (GME) massive increase. I had bought a contract that had a 2 week expiration date, and I had known about its small spikes in prices then pulling back. With that being said, I played it right and made around a $200 profit, which is great for a single contract. Thus, I sold to take profits and play that money elsewhere. Little did I know, two days later the stock price would shoot from where I sold at $42.15 to over $300. In terms of how much that is worth in contracts, I spent around $200 on my contract and sold at around $400 per contract. The same contract I had was now worth over $100,000. I felt angry with myself that I could have made the largest play ever of my trading career. It was hard to forget about it because everywhere I looked, there was a story headline about GME. Only recently have I come to terms that from an analysis stand point I made the right choice, but the news and other media inflated the price. I realized it was something I couldn’t have seen coming no matter what analysis I would have done. Throughout the time GME was skyrocketing I felt that I needed to find a way to get in and try to make a play. However, it was way too expensive and way past the amount I was willing to put on the line. I needed to accept that I lost an opportunity and had to continue on trying to play other things.

The moral of that story is don’t chase a stock or try to play something when it is too late. It is very risky and in moments like those it is heartbreaking to lose an opportunity that could build your wealth no matter how small or big it is. Take a step back, internalize those feelings and try to enter the stock market when you’re in a better head space. There will be many experiences where that occurs, so make sure that you’re keeping yourself on check.

Basic Chart Patterns

When it comes to invest market, it is easy to get overwhelmed with the charts, the terminology, and all the numbers involved with it. For beginners it is easy to make impulsive investments because they may not understand, which evidently causes them to lose money. I am going to share a couple of chart patterns that have been helpful for me to identify when to make a play and when to avoid one.

The Rising Wedge has been useful for more of my long term or swing plays (2-3 week contracts). Moreover, it useful when trying to catch a bullish reversal. The term Bear is when the market is in a downtrend and the term Bull is when the market is in a uptrend. The Rising Wedge is useful when you catch the market go from a Bear market to a Bull one. This is essential because you want to invest when the stock price is at its lowest. The less you invest, the better. This way, you buy when it is “cheap” and that way you know it won’t pull back. In the illustration you can the see the terms “support” and “resistance” and the rising wedge helps know when the dip occurs and when it will bounce back up. In other words, where it will uptrend and when it will downtrend (Pullback). Lastly, this goes for most chart patterns but try and look at it in 1 hour or more time interval so you can see the stock movement in a larger scale in terms of time.

The Bear Flag pattern can be utilized when playing “Puts” in option trading. Like I previously stated in another post, “Puts” is betting the price of a stock will go down. You can still make money even when stock prices are falling, which is equally as important when you’re investing in the price going up. As you can see in the illustration above, the stock is in an obvious downtrend, which is why it is called a Bear Flag. In “Puts” you lose money when the price is going up, but that means that the contracts must be slightly cheaper in regards to the “Puts”. I can emphasize enough how it’s easier to buy when it’s cheaper so you can maximize your profits. The Bear Flag in some cases traps people into believing the price will pick back up, but what is happening is the price is going up but then makes a sharp dip. What you want to do it buy the “Puts” contract when the price is high and wait for the dip. You have to be able to identify the price is on a downtrend, it isn’t smart to buy it without doing any analysis.

These are just two basic chart patterns that should help a person get into a trade, whether that they are playing Call Options or Puts Options. Doing more research will help enhance your ability to identify a worthy trade.

What is Stock Option Trading?

Investing comes in many forms in the stock market. Traditionally, when we think about trading stocks, we immediately think of buying the stock for the price it is worth. For instance, Apple (AAPL.) is worth $123.59, so the cost per stock is $123.59, which is only one share. Now, unless there is good news associated with the company stock, it doesn’t usually go up past $10 before it pulls back. There are weeks when the stock price fluctuates between a specific price range. Thus, buying individual shares can take a while to see any significant profit and it is a lot more expensive. As a result, I will covering the basic foundation of a alternative form of trading I do that has proven a lot more profitable in a shorter amount of time.

I trade what is known as Stock Options. Essentially, you buy 100 shares at fraction of the cost associated with company you want to invest in. In most platforms, you are given the option to either buy “Call Options” or “Puts Option”. When purchasing a Call Options, you are essentially betting the price of the stock is going to increase and when purchasing a Puts Option it is the other way around. Additionally, when purchasing a stock option, you are buying what is known as contracts. You aren’t signing a deal directly with a company but are buying the contract for a certain amount of time. You have to choose how long to hold onto to these contracts, which can vary from a week to as long as two years. What is important to keep in mind is that long-term contracts are a lot more expensive in comparison to buying one that is 1-2 weeks away from the day you are purchasing it. It is crucial to sell the contract before the expiration date, which are usually on Friday, unless there is holiday that causes the stock market to close. You have until the end of the trading day to sell the contract. You select “Strike Prices” which is where you think the price of the stock will hit whether you think its going up or down. I recommend to buy “In the Money (ITM)”. What that means is you buy a contract at a price target that has already been hit. It is a safer, but slightly more expensive route because if the price begins to fall, you have a bit of space to work with. It is always better to be safer than sorry.

For the sake of getting this across, we are going to use AAPL as our example. In the time of writing this, AAPL stock is $122.42, which means each share is worth that price. For example, I predict the price will hit $128 by March 5th, so I buy a contract at a 120 strike price to be ITM. I buy a contract that is two weeks out so incase there is a pullback, I have time for the stock price to recover. It is important to remember that companies have bad days in the stock market, and sometimes for consecutive days. However, it is important to be patient and wait to see how the price gradually begins to drive back up. Hence, why I recommend to buy contracts that are at least two weeks out. Buying contracts that expire the same week may be cheaper but it is a risk because a can be a bad week as a whole for the company. Now, the payment is completely different in stock options. Like I said before, you purchase 100 shares at the fraction of the cost. Normally, buying 100 shares at $122.42 would cost $12,242 but in stock options you buy them at $558. It is a lot cheaper, but it is a lot riskier. Normally for AAPL, for every $1 it moves, that translates to $50-$100 profit or loss depending if its going up or down. It is easy to see the $500 investment go down to the contract only being worth $200 so its a $300 loss. We will go into cutting our losses or taking our profits in another post.

To conclude, we see the potential in stock option trading and how making the proper plays can build wealth. It is all about being patient and understanding when to buy and knowing how to utilize other forms of investing.

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