The best commission free brokers can be judged by their online trading software and ability to help their clients manage risk. Part of managing risk is the ability to locate hard to borrow stocks for short selling clients and to do so in an efficient and timely manner. Timely location of hard to borrow stock and execution are essential for any short sale. TradeZero has developed the technology, contacts, and expertise in this area to benefit the short selling community.

The psychological need to book a profit is strong in human nature but often can cut a significant profit short. To maximize potential profit, the trader must learn to trail stop orders in day trading and swing trading. It isn’t easy, but the most successful traders do it. The best traders not only know how to stop out on a trade but also to reverse the trade and go the other way.

In risk management, it is also essential to initiate a stop order as soon as a trade has been put on; that way, if the trade goes wrong, the hit to the P&L will be contained, and the trader can move on to the next setup.

A trader can have the best trading platform, but they will fail if they do not handle risk well. It is a matter of small to medium-sized gains that consistently bring exponential growth to the trading account. As one astute observer once said about golf, “The woods are full of long drivers.” Keeping one’s trading account out of the woods by not swinging so hard is more than common sense. Capital management is what it is all about.

As to the current market environment, when the perception of risk is highest, we look for opportunities on the long side, and when the perception of risk is minimal, we look for short side opportunities. Many stocks have been in bear markets for up to a year, and sentiment among the investing public is extremely fearful (perception of risk high). So, we are looking for stocks with basing patterns demonstrating good relative strength against the market. The longer the base, the better.
We believe the market is in the nascent stages of a summer rally attempt that will end in late August to mid-September, along the lines of our 60-year Master Cycle (the 1962 analog).

As all remember from these weekly notes, in the spring of 1962, the Kennedy administration went after US Steel for a hefty price hike that the company had instituted. That spooked the market, which sold off until June 25th. (The low this year, so far, was on June 16th) After that, the market staged a summer rally that peaked around August 23rd, close to 60 days/degrees of solar time, from low to high. At that point, the market traded off those levels with several significant swings along the way. On October 16th, the Cuban Missile Crisis arrived. The public was once again shocked at the potential for nuclear war. The crisis lasted until November 20th. Judging by the action in S&P 500, the market handled it reasonably well, but it did have a significant bout of selling between October 10th and October 24th of that year.

Could we see something similar to the Cuban Missile Crisis this year? No one knows for sure, but one item we picked up on stated that China, Russia, and Venezuela would be staging war games this August in South America and the Caribbean.

Cycles repeat, and history rhymes. Trade well and stay safe. JHS

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