Notes From The Editor

Common Trading Mistakes...And How to Avoid Them (Part II)

Recently we covered three common pitfalls that can trap traders, making it more difficult to succeed over the long-run. Let's look at two more of these mistakes. What are their causes, and how can they be avoided?

Mistake #4: Failing to control your emotions.

Unless you happen to be a robot with an unfeeling CPU brain, your trading successes and failures will produce an emotional reaction. For example, imagine that you're on a nice winning streak. You've had three winning trades in a row, each producing a larger profit than the last. You feel excited and even a bit elated. Your trading strategy is paying off! However, the problem emerges when your start to become careless. You feel a bit invincible, as if you suddenly have this all figured out. You start to let greed influence your decisions, jumping into less-than-promising trades and failing to use solid risk management. The resulting carelessness quickly leads to a string of losing trades - and before you know it, your winnings have been erased.

Dangers also arise when fear enters the equation; it clouds your decision-making and leads to trading that is based on your emotions, rather than the price action. Thinking less rationally, you might bail out of profitable positions before they've realized their full potential, or sell a position for a loss even though it hasn't triggered your stop. Not a good state of affairs.

The solution is to have a trading system that's emotion-proof. There's tremendous value in setting rules for yourself. Always use risk management strategies, regardless of how you're feeling at the time. And always, always honor your stops.

Also make it a point to become more self-aware; it's okay to feel those fundamental emotions (hey, that's what makes us human!), as long as you remember to insulate them from your trading.

Mistake #5: Holding on to losing positions.

One of the most frustrating aspects of trading is when you sell out of a position for a loss, only to see it snap back and move in the direction you originally thought it would. "Arrgh," you think, "if I just would've held on a bit longer, I would've been fine!"

This line of thinking can get you into a heap of trouble.

While some trades will bounce back after you're stopped out, there are also cases where a stock will keep moving against you. As you continue to hold out for a rebound and recovery, your losses mount. What was a manageable loss may turn into a sizeable hit to your account.

The cure to this malady is simple: don't hold on to losers! Start each and every trade with a clearly-defined stop. If that level is violated, you're out of the position with your skin intact, ready to move on. Also consider placing that stop-loss with your brokerage - what's known as a "hard stop" - to remove all guesswork from the equation.

Next week we'll explore more of these common trading traps. While the market landscape is littered with obstacles, the good news is that you can spot them on the horizon, steer clear, and continue your journey to lasting success.

Here's to profits,

Kent Barton
Senior Analyst

Quick List

    
Stock     09/29     09/29      Buy      Short   Trailing Stops     Gain 
Symbol    Price      +/-      Entry     Entry   Initial/Tighten   Amount 
------  --------  --------  --------  --------  ---------------  --------

PLRX      20.76     -0.14     21.16     19.66         1.5/0.75      3.02
STRS      23.55     -0.25     23.98     22.31        1.67/0.84      3.32
ASAN      22.24     -0.76     23.14     21.06        2.08/1.04      3.56
SHLS      21.15     -0.23     21.62     19.72         1.9/0.95       3.4
DLO       20.60     -1.11     21.43     19.74        1.69/0.85       2.5

The "Quick List" provides a brief summary of each stock write-up and should be taken in the context of the related write-up presented in the "Stocks Covered in This Issue" section of this Report.

Be sure to read "How To Use The RightLine Quick List" and always use the RightLine Risk Control Calculator before entering any position.

For more on controlling risk go to the RightLine Risk Control System

For a glossary of terms unique to The RightLine Report go to: Glossary

Questions? Send us an email using our Contact Form.

Market Summary

US stocks were lower on Thursday following news that weekly initial unemployment claims unexpectedly dropped, increasing expectations that the Fed will remain aggressive with its hawkish monetary policy. In other economic news, unrevised GDP data for the second quarter showed another quarterly contraction, while inflation metrics for the quarter were revised higher and personal consumption was adjusted upward. Equities headlines featured CarMax (KMX $65) shares falling after the company missed earnings projections, and Starbucks (SBUX $87) share price dropped despite an increased quarterly dividend. Gold, oil prices and the USA/dollar were lower, treasury yields were higher.

                        Sep 28, 2022           Sep 29, 2022   
                  --------------------   --------------------
Dow                 29,683.74   548.75     29,225.61  -458.13
Nasdaq              11,051.64   222.13     10,737.51  -314.13
S&P 500              3,719.04    71.75      3,640.47   -78.57

NYSE Volume                      4.72B                  4.69B
NYSE Advancers                   2,852                    560
NYSE Decliners                     440                  2,702

Nasdaq Volume                    4.58B                  4.53B
Nasdaq Advancers                 3,677                  1,145
Nasdaq Decliners                 1,001                  3,522

                                 New Highs/Lows

                   09/22  09/23  09/26  09/27  09/28  09/29
                 --------------------------------------------
NYSE New Highs        10      8     11     15     12      8
NYSE New Lows        726  1,106  1,083    893    294    820
Nasdaq New Highs      25     23     24     31     31     19
Nasdaq New Lows      932  1,227    990    898    365    761
   

TRADER'S TIP: "Practice vs. Prediction"

"There is a huge difference between trading correctly and making an accurate market prediction. In the final analysis, predicting the market is not what's important. What is important is using sound trading practices. And if sound trading habits are all that is important, there is no reason to try to predict the markets in the first place."

~ Charlie Wright, Veteran Trader and Hedge Fund Manager

The Technical Analyst

For help with this chart, be sure to read "Understanding The Importance Of Support And Resistance"
and "Improve Your Trading With Moving Averages".

S&P 500 - 3640.47 September 29, 2022

52-Week High: 4818.62
52-Week Low: 3610.40
Daily Trend: DOWN
Weekly trend: DOWN
Weekly Pivot Levels
Resistance 3: 4268.45
Resistance 2: 4008.85
Resistance 1: 3851.04
Pivot: 3749.25
Support 1: 3591.44
Support 2: 3489.65
Support 3: 3230.05

NASDAQ Composite - 10737.51 September 29, 2022

52-Week High: 16212.23
52-Week Low: 10565.14
Daily Trend: DOWN
Weekly trend: DOWN
Weekly Pivot Levels
Resistance 3: 12833.10
Resistance 2: 11952.25
Resistance 1: 11410.09
Pivot: 11071.40
Support 1: 10529.24
Support 2: 10190.55
Support 3: 9309.70
        
Dow Industrials - 29225.61 September 29, 2022

52-Week High: 36952.65
52-Week Low: 28958.22
Daily Trend: DOWN
Weekly trend: DOWN
Weekly Pivot Levels
Resistance 3: 33508.76
Resistance 2: 31732.34
Resistance 1: 30661.37
Pivot: 29955.92
Support 1: 28884.95
Support 2: 28179.50
Support 3: 26403.08
 

Market Calendar

ECONOMIC REPORTS AND EVENTS (all times are Eastern):    

FRIDAY, SEPT. 30					
8:30 am	PCE price index
8:30 am	Core PCE price index	Aug.
8:30 am	PCE price index (year-on-year)
8:30 am	Core PCE price index (year-on-year)
8:30 am	Real consumer spending
8:30 am	Real disposable incomes
8:30 am	Richmond Fed President Tom Barkin speaks				
9 am	Fed Vice Chair Lael Brainard speaks				
9:45 am	Chicago PMI	
10 am	UMich consumer sentiment index 
10 am	UMich 5-year expected inflation 
11 am	Fed Gov. Michelle Bowman speaks on bank supervision				
12:30 pm	Richmond Fed President Tom Barkin speaks on what's driving inflation				
4:15 pm	New York Fed President John Williams speaks on financial stability


For a chart of typical Up or Down market reactions to specific major US economic reports 
go to:  Economic Indicator Effects

TRADER'S TIP: "After Hours"

Participation by Market Makers in after hours trading is strictly voluntary, which as a result may offer less liquidity and inferior prices. Because of this limited liquidity, the prices you see provide little information as to how the stock will perform during the following session.

Stocks Covered in This Issue

HEALTHCARE SECTOR

Pliant Therapeutics, Inc. (PLRX: Healthcare/Biotechnology) - SQUEEZE PLAY. Traders are feeling the pressure as PLRX's intra-day price range on Thursday shrunk to the narrowest spread in over a week. The tension between buyers and sellers should provide enough pent-up engergy for a breakout move in the days ahead, so get ready to trade with the new trend. To achieve that, place a BUY entry at 21.16 and a SELL short entry at 19.66. PLRX's price movement will decide which entry is filled. As soon as you're in the trade, enter a 1.5 trailing stop. Tighten it to 0.75 after you get a 3.02 gain. PLRX closed Thursday at 20.76. Earnings Report Date: Nov 07, 2022. Beta: 1.47. Market-Cap: 1.011B. Optionable.

REAL ESTATE SECTOR

Stratus Properties Inc. (STRS: Real Estate/Real Estate-Diversified) - SQUEEZE PLAY. The ticker for Thursday's session shows STRS is now stuck in a tight price band. With the cyclical contraction and expansion nature of volatility in force, we should see a new period of price expansion in the days ahead. To improve the odds of catching the next directional wave, place a BUY trigger at 23.98 and a SELL short trigger at 22.31. When STRS starts moving out of its narrow range, your order will be triggered. Once you're in the trade, cancel the opposing trigger and set a 1.67 trailing stop. Upon reaching a 3.32 profit, resize the stop to 0.84. Earnings Report Date: Nov 14, 2022. Beta: 0.84. Market-Cap: 194.836M. Not Optionable.

TECHNOLOGY SECTOR

Asana, Inc. (ASAN: Technology/Software-Application) - SQUEEZE PLAY. Thursday's trading session left ASAN in a very narrow price range after buyers and sellers fought to a near stalemate. Both sides are looking for some traction, and a breakout either way could provide a nice gain in the short term. To get aboard, set your BUY trigger at 23.14 and your SELL short trigger at 21.06. One of the orders will be triggered by upcoming price action. When your market order is filled, cancel the remaining trigger and enter a 2.08 trailing stop. Once you have a 3.56 profit, reduce the stop to 1.04. Earnings Report Date: Nov 30, 2022. Beta: N/A. Market-Cap: 4.693B. Optionable.

Shoals Technologies Group, Inc. (SHLS: Technology/Solar) - SQUEEZE PLAY. SHLS is stuck in a Bull/Bear deadlock. Fortunately for traders this impasse should be resolved soon, with one side or the other taking control. We want to be positioned for a potential quick move up or down, so get ready to catch this train with a BUY entry at 21.62 and a SELL short entry at 19.72. Once your trade is filled, enter a 1.9 trailing stop. Tighten it to 0.95 after a 3.4 gain. SHLS closed on Thursday at 21.15. Earnings Report Date: Nov 07, 2022. Beta: N/A. Market-Cap: 2.383B. Optionable.

DLocal Limited (DLO: Technology/Software-Infrastructure) - SQUEEZE PLAY. Thursday's narrow price range has created a potentially profitable setup in DLO, as sellers and buyers find themselves in a near tie for control of price direction. The next short-term trend could go either way, so prepare for a move out of the draw within the next day or so. Set a BUY entry at 21.43 and a SELL short entry at 19.74. Let DLO's price action determine your long or short entry. Once the order is filled, place a 1.69 trailing stop, and tighten it to 0.85 upon getting a 2.5 gain. DLO closed Thursday at 20.60. Earnings Report Date: N/A. Beta: N/A. Market-Cap: 6.093B. Optionable.

IMPORTANT: Before entering any positions, always use the Risk Control System to determine the level of acceptable risk and the maximum number of shares to buy. Use Gap Adjusted Entries to reset the Entry Price for stocks that gap beyond recommended entry levels.

Stock Splits

Below are the stocks that have announced splits and have recently executed or will execute soon. There is generally a return to normal price behavior in the weeks following a split announcement in what we call a "Dormancy Phase." As the stock nears its split execution date (Effective Date) it often moves into the "Pre-Split Run" stage where quick and sometimes dramatic gains can occur.

                             Announce     Eff.       Split
Company Name     (Symbol)      Date       Date       Ratio   Options  
---------------- -------     --------    -------     ------  -------   
Nasdaq Inc        NDAQ       7/20/2022  8/29/2022    3-for-1   Yes
Tesla             TSLA       8/5/2022   8/25/2022    3-for-1   Yes
Palo Alto Net     PANW       8/23/22    9/14/22      3-for-1   Yes    

Split details are also available online at the RightLine Online Stock Split Calendar. For a detailed look at the different stages of a Stock Split, Click Here.

A simple yet powerful tool, the Risk Control Calculator helps you manage risk by recommending a maximum number of shares to purchase. Available in the RightLine Member's Area.

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