Don’t Let Urban Legends Hold You Back

If I’ve heard it once, I’ve heard it hundreds of times.

“I got crushed on a trade yesterday but only because short sellers were holding it down.”

Excuse me? Let’s put an arrow through an urban legend’s heart…

“Regular people can’t win in stocks, right?” WRONG!

Register Here To Discover the Battle-Tested Formula

The Big Picture

The longer you hang around trading chat rooms, the more urban legends you’ll hear.

It might seem like fun and games, but some new traders hear a bunch of nonsense and take it on board. So, let’s put two urban trading legends to rest.

RIP Urban Legend: “Short Sellers Hold Stocks Down”

My friend, there are only buyers and sellers. If there are more sellers than buyers, the price goes down.

It works both ways. If there are more buyers than sellers, the price goes up. That’s how a market works. It’s supply and demand, okay?

Now, over a short period of time, selling pressure can drive the price down. But (and this is important), if buyers believe the price is too low, if they believe the stock is undervalued, they can absorb the supply and move the price up.

Look at the ReTo Eco-Solutions, Inc. (NASDAQ: RETO) chart below:

It’s not down because of short sellers manipulating price action. How could they do that?

It’s just that everybody is selling and nobody’s buying.

For what it’s worth, the idea of short selling to depress prices goes all the way back to the Dutch East India Company in 1609.

Here in America, talk of “bear raids” was everywhere after the 1929 crash.

Here’s another urban trading legend we’re killing today…

RIP Urban Legend: “Volatility Halts Are Market Manipulation”

Look, this urban legend is all over crazy Reddit communities, psycho Discord servers, and probably wherever little Jimmy living in his mom’s basement goes to collect his check.

There’s math that goes into volatility halts. They’re triggered automatically.

You should understand trading halts. And it wouldn’t hurt to learn what the halt codes mean.

But nobody is halting a stock because they don’t like what direction it’s going, okay? This is a myth poisoning the minds of self-described chat room heroes everywhere.

Let’s look at RETO again, except zoom in on last Tuesday (Sept. 15)…

All those gaps are volatility halts, triggered automatically, to keep things from going bananas.

You might not like volatility halts. I don’t like trading ‘em. I avoid ‘em like the plague. But at some point, most people trading these kinds of stocks get caught in one.

It happens, okay? Live with it, learn from it, and move on to the next.

My Take

Now, if you want to believe urban legends, you can. But I think it’s a waste of time and energy.

It’s just buyers and sellers. Everyone, short and long, is trying to buy low and sell high. That’s it. Now, when to buy is a different story. But don’t let the legends fool you.

You never have to let urban legends get in the way of your trading success. Instead, learn about psychology, supply and demand, and patterns. Develop discipline and personal responsibility.

Watchlist

With all the news about AI and cybersecurity last week, a lot of companies are bringing AI and data back in house, and they need to protect that. That’s where CrowdStrike Holdings, Inc. (NASDAQ: CRWD) comes in.

CRWD is up +89% on the year, but it’s up +180% since the February low. So, I think the chart represents the idea that companies want to own their own intelligence and keep it safe.

Look for breaks above major resistance around $249.50, with support around $227.

On My Radar

• Being Libertarian is getting more fashionable?
• Must-read for traders about myths, bubbles, and legends: “Extraordinary Popular Delusions and the Madness fo Crowds” by Charles Mackay
• My in-studio Schwab TV appearance on Friday (more on CRWD plus two more swing trade picks)
• Save your spot and join Tim Sykes for his Millionaire Formula Conference