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Falling Knives

Falling Knife.jpg

Before I start writing this, I understand the words that lay before you, are going to annoy many of you, but I’m comfortable with that, and I’ve made peace with that before I start, and given that many of you follow my work closely, and many of you email / message me for my views, it would be incredibly poor of me, if I wasn’t honest with you.

Many of you have emailed me today asking me what the best approach would be with Stock XYZ, and given the Market is currently undergoing a rather large test today, it’s important to ask some pretty tough questions, so here goes’s my take.

There are currently 1800 Stocks Trading ABOVE Key Market Support Levels, and a whopping 5700 Stocks Trading BELOW Key Market Support Levels (this info was provided by 1 of my clients today who sourced the information - thanks James)

The dynamics of the stock market have changed dramatically over the last couple of Months… the emails and messages I’ve received recently are all essentially asking the same thing, and the question I tend to receive is this.

I bought Stock X when it started falling a couple of weeks ago, but it hasn’t rebounded, it’s kept on falling and I need to know if I should sell my position or not?

I’ve not responded to these emails, because there have been a few too many, and this blog should hopefully provide my 1 size fits all response but as I mentioned a minute ago… you may not like the response, but I do hope you appreciate the honesty.

You see, the major mistake I see everyone make really comes down to the school of thought that says, by taking positions in Apple / Amazon / Boeing or some of the other leading Tech companies of the last few years, that this somehow makes your positions immune to the current market predicament - and It’s certainly sad to see some of the numbers you mention.

I do accept there are defensive plays in the Market, but when we consider that stocks are selling off in their droves, and more than 50% of the Stock Market has entered Bear Market territory, it makes sense that the leading components would eventually follow suit, this is now what we’re seeing, and when I posted my 2 blogs last month on the 18th and 23rd October which had the Headlines - A Market Crash - What to do? and How to Profit in All Market Conditions… there were warning signs as to why I was highlighting what I view on a Technical Level.

I guess what I’m trying to say (in as nice a way as possible) is that the scenario that’s currently playing out was half expected, and it’s why there has to be the understanding among everyone, that catching a falling knife is an incredibly dangerous tactic, and the emails received today are the resulting bleeding hands.

Most of my clients are sitting on cash at the moment (which is perfectly acceptable)… it’s discipline that is being rewarded at the moment with a Quality over Quantity approach, whilst waiting for a clear direction to present itself in the Market… which I’d hope is hopefully going to reveal itself soon.

Are you in a position to profit?

The Stock Market is also Full of former “darlings who could do no wrong”…. here are just a few

  1. IBM was trading at $220 in March 2013…. if you bought back then at the high, you’re still down 50%

  2. GE was trading at $60 in September 2000…. it’s now Trading at $7

  3. AMD was trading at $50 in June 2000 before it dropped as low as $2, and undergone a recent resurgence, it’s now $20

    The point I’m trying to make is that stocks can and WILL fall for much longer than you think is possible, and because the evolution of a company is no doubt impacted by a falling stock price, those companies you think are rock solid, have a nasty habit of revealing themselves to be casualties in the end, and that’s why you should always guard against catching a falling knife and educate yourself on Risk Management and Trade Management protocols.

I do think Education would solve many of the issues and relieve most (if not all) of the pain you’re in just now, but ultimately, there has to be a motivation to want to learn, instead of jumping back into the markets blindly because the definition of insanity is to keep doing the same thing over and over expecting a different result.

I know there’s a lot of pain out there just now, I know how it feels… I just hope most of you choose to learn from the errors, because in this game, we simply never stop learning, and if you don’t know why you’re doing something, you’re as good as dead in the Markets.

So the question you probably all want to know - where does the market go from here?

I think at this point I’d be guessing just as much as the next person, Technical Analysis can help us identify potential short term counter trend moves… but over the long term… absolutely nobody knows, so you must always ask yourself the question - What if I’m wrong? I find that’s a good place to ask questions of yourself BEFORE you take the position.

For those that are struggling at the moment, it might be time to ask the question -

Am i happy doing what I’m doing or would you like better results?

If you’re NOT happy doing what you’re doing, feel free to grab a time that suits, and fill out the quick application below.

It might just make all the difference to you.


Are you Ready to Learn?

Sam McCallumComment