0:00

Hi and welcome to the Day

0:02

Trading for Beginners podcast. This is

0:04

season 3 episode 4 and in

0:06

this episode we are talking about

0:08

why markets wear you down. We're

0:10

going to decode support zones for

0:13

some new traders. So my name is

0:15

Tyler Stokes from Stoke Streets.com. I'm

0:17

on a journey to become a

0:19

full-time day trader and at the

0:22

moment I am trading with more

0:24

of a swing and momentum style

0:26

and strategy. Now I outline...

0:28

my trading strategy in our school group.

0:30

You can find a link to that

0:33

below in the show notes. It's absolutely

0:35

free. And if you are a first-time

0:37

listener, you can download my six-month blueprint

0:40

that outlines all the steps that I

0:42

took on the first six months of my

0:44

journey. You can get that at Stoke

0:46

Trades.com/blueprint or in the show notes below.

0:48

And that's going to be a good

0:51

roadmap for beginner traders just to get

0:53

started on the right path. So in

0:55

today's episode. goes well with the state

0:57

of the market right now. So I'm

1:00

recording this on March 24th Monday and

1:02

it looks like today has been a

1:04

green day in the market in the

1:07

past episode. We talked about liquidity grabs

1:09

and I mentioned that March might be

1:11

looking like one big liquidity grab where

1:13

prices have been pushed down to low

1:15

levels and by the end of the

1:17

month we might bounce back and kind

1:20

of close at higher levels. And then

1:22

the prior week we spoke about market

1:24

structure and how important it is to

1:26

sometimes you know, step back and look

1:28

at the high time frame support, the

1:30

high time frame market structure, so weekly

1:32

or monthly, and ask yourself, you know,

1:35

are things broken down? And, you know,

1:37

the month isn't over, but the time

1:39

this gets released, I think I might

1:41

release it sort of one week into

1:43

April, and we'll would have known if,

1:45

you know, March finished strong. But what

1:47

we might be seeing is that market

1:49

structure is intact, we had a big

1:51

liquidity grab. And then things are going

1:53

to bounce back up and hopefully into

1:55

the spring and into the summer the

1:57

market's going to move higher so again

2:00

Right now, today is a green day

2:02

on March 24th. When you're listening to

2:04

this in the future, hopefully the market

2:06

is green and it continued to bounce

2:08

from today, but who knows? But that's

2:10

sort of what we are looking at.

2:12

So today's topic, why markets wear you

2:15

down, it kind of talks about where

2:17

we are right now in the market,

2:19

you know, we keep getting these support

2:21

zones tested. So we're going to talk

2:23

about what that is from more of

2:25

a general trading kind of perspective. Now,

2:28

if you've you've been trading a No

2:30

matter whether you trade stocks or crypto,

2:32

you know, you've probably noticed, you know,

2:34

how price can really bounce around like

2:37

a pinball machine on the charts. And

2:39

sometimes as beginners, it's tough to know

2:41

what is going on. But there is

2:43

some good news. You know, with more

2:46

experience, you can eventually get a sense

2:48

of what is going on and maybe come

2:50

out ahead. So imagine sort of trading

2:52

where, you know, you're not just

2:54

guessing, but you're actually understanding the

2:56

game and staying calm while others.

2:58

panic. So in this podcast, really

3:00

we want to kind of explain

3:02

how markets test these support levels

3:04

and talk about two quotes, one

3:06

from Warren Buffett and another trading

3:08

icon. So this is more of

3:10

a general kind of discussion on

3:12

trading as opposed to, you know,

3:14

a strategy for day traders. So

3:16

this might not really apply to

3:18

a specific day trading strategy, but

3:20

I think this general market knowledge

3:22

is going to be beneficial for all

3:24

beginners no matter what strategy you end

3:27

up trading with. So we're talking support

3:29

zones. So what is a support zone?

3:31

Why does it matter? Well, you know,

3:33

if you can imagine the price of

3:35

a stock or anything that you're

3:37

trading, as a ball sort of

3:39

bouncing around, a support zone, it's like

3:42

this invisible floor where the price tends

3:44

to stop falling. So, you know, it's

3:46

not really an exact number. Sometimes traders

3:48

call a range. So if we were

3:51

to say like... a range around, as

3:53

an example, $45 for a stock. So

3:55

that would be where buyers often step

3:57

in thinking, hey, this is a bargain.

4:00

They buy and the price then bounces

4:02

back up, like the ball sort of

4:04

hitting a floor. So if we want

4:06

to imagine 45 as a support zone

4:09

for a particular stock, just as an

4:11

example, and buyers tend to jump in

4:13

when the stock reaches this level. But

4:15

there is a catch. The market. It

4:18

doesn't just touch that floor once and

4:20

then call it a day. It keeps

4:22

dropping back to that support so and

4:24

it can do this over and over

4:27

and sort of testing it. So traders

4:29

call this sort of testing the downside.

4:31

So each dip is like the market

4:33

asking are the buyers still here will

4:36

this floor hold or will it break?

4:38

So in our example, you know, the stock

4:40

might hit 45, maybe it climbs back

4:42

up to 48, and then it falls

4:44

back to 45 again, and it could

4:46

repeat this for weeks or really even

4:48

months. Now, although at the time if

4:50

you're in this particular stock as

4:52

an example, it might be frustrating,

4:54

you know, if you bought around

4:56

these levels for whatever reason and

4:58

sort of nothing happens for weeks,

5:00

but it can really be a

5:02

good sign of... building a base.

5:05

So if support keeps holding for

5:07

many, many weeks or many months,

5:09

then a breakout could be next.

5:11

So many times when things consolidate

5:13

for a long time, it's like

5:15

a coiled spring that is eventually

5:17

potentially going to break out. So

5:19

this, you know, stability sometimes is

5:21

needed to mark that bottom if

5:23

that bottom is in. So again,

5:26

hopefully, you know, with support getting

5:28

tested on many stocks. Currently,

5:30

maybe that bottom is. And so

5:32

this, you know, stepping this and

5:34

experiencing this sort of reminded me

5:36

of this Warren Buffett quote that

5:39

we're going to talk about. So, you

5:41

know, the market, it can sort

5:43

of, you know, wear you down.

5:45

So this constant testing isn't just

5:47

about prices. It's sometimes about you.

5:49

So that whole mental game of

5:51

trading is important. When the price

5:54

sort of keeps hitting that support

5:56

zone, it can really mess with

5:58

your head. as a trader. even

6:00

just as an investor, you know,

6:02

if you've invested in something, you

6:04

might not be trading right now,

6:06

or your strategy might not really

6:08

worry about this particular aspect of

6:10

the market. But if you're an

6:12

investor, you know, and your investments

6:14

just keep, you know, staying flat,

6:16

consolidating, then, you know, you can

6:18

get anxious, you can get worried.

6:21

So you might think, you know,

6:23

Is it going to crash this

6:25

time? Is it going to fall?

6:27

And then many people sell sometimes

6:29

out of panic in these situations

6:31

or maybe you get tired for

6:33

waiting for the bounce to actually

6:35

happen you give up. So that's

6:37

the market wearing you down and

6:39

it's exactly what Warren Buffett said,

6:41

you know, one of the greatest

6:43

investors when he warned about when

6:45

he said the stock market is

6:47

a device for transferring money from

6:49

the impatient. to the patient. So

6:52

what this really means is that

6:54

the traders who sort of crack

6:56

under pressure or like sell cheap

6:58

when the price dips to 45

7:00

in that little example we had

7:02

they hand their money to someone

7:04

who is more patient and sometimes

7:06

those patient traders they can wait

7:08

they can wait it out if

7:10

they have the time they can

7:12

buy lower they can trust that

7:14

the support will hold and then

7:16

if price eventually climbs out of

7:18

the 45 and up into the

7:20

right they're going to profit while

7:23

the impatient person and trader loses

7:25

out. So, you know, if you

7:27

picture the stock dips to 45

7:29

repeatedly, the impatient person sells fearing

7:31

that a drop to 40 might

7:33

be coming, the impatient or the

7:35

patient one is going to hold,

7:37

buy, maybe even buy lower, and

7:39

then when it rebounds, they're the

7:41

winners in the long term. They

7:43

can accumulate wealth using sort of

7:45

this buying support levels in a

7:47

good market structure. So the market

7:49

is going to reward those that

7:51

stay calm during that grind. Now

7:54

the market also has a crazy

7:56

side that you know beginners need

7:58

to be aware of and sometimes

8:00

you don't know this until you've

8:02

been in the market studying it

8:04

for you know maybe even over

8:06

a year so sometimes you know

8:08

it's hard to become a good

8:10

trader if you don't have that

8:12

experience in being able to see

8:14

what the market is potentially capable

8:16

of doing. So it does get

8:18

a little tricky. Sometimes the market,

8:20

you know, it doesn't bounce back

8:23

when you expect it to. It

8:25

might hit that support zone, it

8:27

might break through, stay low, or

8:29

just sit there for way longer

8:31

than seems rational. to you. So

8:33

maybe it's bad news or maybe

8:35

rumors around whatever security we're talking

8:37

about here or just, you know,

8:39

chaos driving prices in in that

8:41

particular direction. This is where the

8:43

famous trading a saying comes in.

8:45

It's often linked to the economist

8:47

John Maynard Keynes. The market can

8:49

remain irrational longer than you can

8:51

remain solvent. So what this means

8:54

is that You might be patient

8:56

waiting for that $45 support to

8:58

hold, but if the market, you

9:00

know, acts nuts and the price

9:02

drops to 35 and stays there

9:04

for maybe months, you could run

9:06

out of patients or maybe run

9:08

out of money if you're on

9:10

margin. An installment in that quote,

9:12

basically it just means having enough

9:14

cash to keep going. So, you

9:16

know, if you bet too much,

9:18

maybe you borrowed money or maybe

9:20

you were in a scenario where

9:22

you... wanted to shorter stock and

9:25

for whatever reason it just kept

9:27

going up, the market can remain

9:29

irrational to you longer than you

9:31

might be able to stay solvent

9:33

with your margin, your balance or

9:35

your shorts that you might be

9:37

shorting. So that is something that

9:39

you need to be aware of

9:41

and it should be something thought

9:43

about to help you sort of

9:45

manage risk wherever you are trading.

9:47

that I've come across a lot

9:49

and I want to sort of

9:51

get clarification on is capitulation. So

9:54

what's capitulation? You may have heard

9:56

that before and basically here's a

9:58

beginner's sort of tape on it.

10:00

So again you may have heard

10:02

that term you know in the

10:04

market capitulation. people on YouTube or

10:06

other podcasts may have thrown it

10:08

around in trading chats or videos.

10:10

It sounds dramatic, but it is

10:12

rather simple. Capitulation, that happens when

10:14

a large group of traders collectively

10:16

throw in the towel and then

10:18

abandon their position. So if you

10:20

can picture again that support zone

10:22

at 45, gets tested over and

10:25

over, the price dips, buyers fight

10:27

it to hold it, then it

10:29

breaks to 40. panic sets in,

10:31

everyone starts selling, like crazy thinking,

10:33

you know, I'm done, it's going

10:35

to go, you know, even further

10:37

down. That flood of selling is

10:39

capitulation. It's the moment that the

10:41

last holdouts throw in the towel

10:43

and it drives the price down

10:45

even lower. And why this matters

10:47

is that capitulation usually marks a

10:49

bottom. in the market. It's the

10:51

point where selling exhausts itself and

10:53

the price might finally hit a

10:56

floor and eventually rebound. So, you

10:58

know, in that example, maybe the

11:00

stock even drops to 30 and

11:02

everyone's sold from 40 all the

11:04

way down to 30. Smart buyers,

11:06

the patient ones that, you know,

11:08

we talked about with that Buffett

11:10

quote, might scoop in the price

11:12

climbs back up and that sort

11:14

of goes in hand with what

11:16

we talked about in the last

11:18

episode about liquidity grabs. You know,

11:20

maybe these market makers have been

11:22

pushing the price of this particular

11:24

stock, for example, with news narratives

11:27

and various other tactics selling pressure

11:29

at 40 to get everyone to

11:31

capitulate and sell and now it's

11:33

driven the price down to 30

11:35

and they'll swoop in and buy

11:37

at 30 and wait for the

11:39

rebound. So the trick is to

11:41

recognize that it. after it happens

11:43

and not jumping ship with the

11:45

crowd. So basically, beginners, they miss

11:47

this. The capitulation looks scary, but

11:49

it can signal a turning point

11:51

and it is important to recognize

11:53

it after it happens. Don't sell.

11:56

with the panic hurt of the

11:58

market, don't capitulate, just sort of

12:00

try to understand what is going

12:02

on in some of the investments

12:04

that you might be holding. And

12:06

here's a real example. You know,

12:08

it's easier said than done and

12:10

I can speak from experience as

12:12

well. You know, back in January

12:14

2023, Tesla stock, if you've been

12:16

following that, it plummeted to a

12:18

low of $101.81. So it was

12:20

down. over 65% from its peak

12:22

the prior year in 2022 after

12:24

you know I think there was

12:27

a weaker Q4 delivery numbers than

12:29

what Wall Street expected sparked that

12:31

sparked fears of slowing demand and

12:33

then we had the whole China

12:35

competition with discounts that discussion we

12:37

had Elon Musk buying Twitter around

12:39

that time so I think you

12:41

need to sell a lot of

12:43

shares so the drop really triggered

12:45

capitulation mass panic selling as traders

12:47

gave up Hope with over 220

12:49

million shares were traded on January

12:51

3rd alone. So that was a

12:53

big trading day many people were

12:55

selling and I think I don't

12:58

know the exact time I sold

13:00

but you know I have an

13:02

investment in Tesla I forecasted I

13:04

needed some funds throughout the year

13:06

of 2023 and I was thinking

13:08

you know what if this goes

13:10

down to 60? I don't want

13:12

to have to sell at 60

13:14

if I need some funds. it's

13:16

at around a hundred now and

13:18

I actually sold a little bit

13:20

of my shares because I needed

13:22

the funds and looking back I

13:24

capitulated there you know I'm looking

13:27

at a hundred and it's going

13:29

down and you know do I

13:31

want to sell next month if

13:33

it goes down to 60 and

13:35

I did sold so I did

13:37

sell so sometimes you know looking

13:39

back is there something I probably

13:41

could have done differently probably but

13:43

when you're in that moment I

13:45

can be difficult for an investor

13:47

or for a trader especially if

13:49

You don't have any knowledge of

13:51

technical analysis, which I didn't, if

13:53

you don't have experience in the

13:55

markets. as well. Many people sell

13:58

like I did, and many people

14:00

got out if they bought, you

14:02

know, when Tesla was up at

14:04

400, 300, they got out at

14:06

extreme losses. So, but, you know,

14:08

looking back now... that capitulation, it

14:10

really marked a turning point. By

14:12

the end of that month, I

14:14

believe that end of January, Tesla,

14:16

that stock rebounded to 173. So

14:18

many people sold out in the

14:20

low 100s, sold at a 101,

14:22

and by the end of the

14:24

month, it's up like 45% and

14:26

I think it hit 207 early

14:29

the next month. Basically, you know,

14:31

that warning, the market can remain

14:33

irrational longer than you can remain

14:35

solvent. I experienced that because the

14:37

market was irrational for Tesla to

14:39

drop so low, I needed the

14:41

funds, so I was forced to

14:43

sell for, you know, whatever reason

14:45

I needed those funds at a

14:47

extremely terrible price. And then the

14:49

next few months, the stock doubled.

14:51

So... it's a real quote and

14:53

I experience it and you know

14:55

if you are unaware of it

14:57

then you may experience it as

15:00

well so hopefully now listening to

15:02

this you can be a bit

15:04

more aware of that and you

15:06

know for beginners it's it's this

15:08

example is a lesson in surviving

15:10

emotional sort of market swing so

15:12

as a new trader that you

15:14

might be or you might be

15:16

getting into trading and investing you

15:18

know what can you take away

15:20

from this well you know you

15:22

can learn to spot those support

15:24

zones Learn market structure which we

15:26

talked about the last few episodes.

15:29

You know, be able to look

15:31

at a price chart and find

15:33

maybe confluence with various indicators that

15:35

a support level is in. Have

15:37

things, ask yourself, have things broken

15:39

down on the high time frame

15:41

chart. So I believe that if

15:43

I had more the knowledge I

15:45

have now with technical analysis, I

15:47

probably, I hopefully would not have

15:49

sold at such a low price.

15:51

the few shares that I did

15:53

there. You can, you know, hopefully

15:55

learn to stay patient like Buffett

15:57

says. When the market tests that

16:00

zone over and over, you know,

16:02

don't pan Excel just because it

16:04

feels shaky in the impatient lose.

16:06

be patient when so depending on

16:08

your strategy hopefully you can be

16:10

patient with something if you're day

16:12

trading then obviously you're in and

16:14

out of trades on a single

16:16

day but you know if you're

16:18

day trading you might also be

16:20

swing trading and you might also

16:22

be investing you know ask yourself

16:24

is this a real break or

16:26

is it just the market testing

16:28

me another thing to consider don't

16:31

over bet You know the market

16:33

can go haywire longer than you

16:35

think so you know if you

16:37

have an account and you go

16:39

on margin close to your maximum

16:41

margin account and you know Something

16:43

happens in the geopolitical Landscape, you

16:45

know, there's there's a war, there's

16:47

a threat, you know at the

16:49

market can be more rational and

16:51

then you can potentially be solvent,

16:53

especially if you're borrowing on margin.

16:55

So very important to know your

16:57

risks in that regard Watch for

17:00

capitulation if a support zone breaks

17:02

and selling goes wild. You know,

17:04

you might, depending on your situation,

17:06

maybe, you know, don't join in.

17:08

Maybe that is going to be

17:10

the mark of a bottom. And

17:12

again, recording this, hopefully the end

17:14

of March is a mark of

17:16

the bottom of the markets and

17:18

you'll know this when you're listening

17:20

to this. the following week. So

17:22

the bottom line here, trading isn't

17:24

just about the numbers, it is

17:26

a big mental game, it's a

17:28

huge, huge mental game, whether it's

17:31

for sticking with your strategy or

17:33

whether it's, you know, and what

17:35

we talked about today where might

17:37

not be related totally to strategy

17:39

but can be related to some

17:41

more of your long-term holdings as

17:43

well. These markets, they test the

17:45

support zones to shake out the

17:47

impatient, you know, the market makers

17:49

are shaking all the retail traders

17:51

out getting them scared getting them

17:53

to capitulate selling shares at the

17:55

low prices and these people these

17:57

market makers these experienced traders are

17:59

swooping in and potentially buying it

18:02

really low levels which might be

18:04

happening here at the end of

18:06

March. And as Buffett points out,

18:08

they can also stay irrational longer

18:10

than we can hang on. And

18:12

that's a classic warning that we

18:14

need to get reminded of. Capitulation,

18:16

it's the wild climax of all

18:18

that chaos, but it can signal

18:20

an opportunity for those sharp investors

18:22

and traders. So as a new

18:24

trader. Our job is to really

18:26

learn the patterns, keep your cool,

18:28

protect your money, start small, watch

18:30

for the floors, and don't let

18:33

the market sort of wear you

18:35

down. Sometimes easier said than done,

18:37

especially when you were starting. But

18:39

this is also why it's recommended

18:41

to paper trade, find a strategy,

18:43

and trade it for many months,

18:45

because the market changes. You're going

18:47

to be in a bull market

18:49

and you might be making money,

18:51

but you might have months like

18:53

February and March of 2025. where

18:55

your strategy certainly won't work and

18:57

you might have to step back either

19:00

change your strategy or be very patient

19:02

and maybe not make trades and wait

19:04

for things to recover. So experience in

19:07

the markets I think is really important

19:09

and it's one of the reasons why

19:11

it can take longer than we hope

19:13

to become really good at trading. So

19:16

I hope that you found this useful

19:18

in the show notes again you can

19:20

find. a link to our community on

19:22

school where you can learn more about

19:25

the strategies that I am currently following.

19:27

You can find some resources there as

19:29

well. You can download the six-month blueprint

19:32

if you are a beginner. That's a

19:34

good roadmap to get started on your

19:36

journey to becoming a day trader, a

19:38

trader in general. So thanks so much

19:41

for listening and I look forward to

19:43

speaking with you in the next episode.