Why Did the Trade Cross the Road?
Stockscores.com Perspectives for the week ending September 30, 2005
|
| Upcoming Events |
StockSchool Pro Course
StockSchool Pro Course - Calgary
Saturday October 29th
Tyler Bollhorn will be teaching a live StockSchool Pro course on Saturday, October 29th in Calgary, Canada. This is part of the personal mentoring that Tyler does to guide aspiring traders to success. Prior to the class, students will have 8 CD Roms and an in depth course book to study. Following the class, students have the personal support of Tyler through the Stockscores Trading Room and email. With the course comes full Pro membership to Stockscores.com and the support of a professional trader.
Prior to the class in October, Stockscores will be hosting some informative presentations on the Stockscores Approach and why it is so powerful. These presentations are free to attend and give you the opportunity to decide if trading the Stockscores Approach is what you want to do.
If you are unable to join us for one of these presentations, please contact Tyler by email at tyler@stockscores.com and he can answer any questions you have. The Calgary courses have always sold out so don't wait until the last minute to decide.
Upcoming Seminar Details, Click Here
|
|
In this week's issue:
What are your motivations for trading the stock market? If you a relatively normal person then it is likely that you trade to make money. However, I have found that trading to make money is dangerous because of the emotional attachment we have to our cash. The best traders have different motivations.
Consider something as simple as crossing the road. What do you think about when crossing a busy street? Are you solely motivated to achieve the obvious goal of getting to the other side? Not likely. You are probably thinking a lot about getting to the other side without getting run over.
While this seems obviously silly, the correlation that can be made to trading demonstrates an important point. When we focus on money, when we are motivated by greed, we tend to ignore the obvious. If you are trading to make money then a number of psychological problems enter the trading decision.
First, we worry about missing out on an opportunity. We may look at a trade and think that it is not ideal but still "pretty good". We remember the last "pretty good" trade set up that came along and how it did really well. We remember the pain that we associate with missing out on that pretty good trade set up that we ignored and that motivates us to take this trade, even though it is less than ideal.
Would you cross a busy road if you had a "pretty good" chance of making it without being hit? Would you jump out of an airplane if there was a "pretty good chance" that your parachute would open?
Second, when our trading decisions are motivated solely by money, we tend to work very hard to find something to trade. While a good work ethic is important to be successful in life, working hard to identify opportunities in the stock market is not always good. Doing so means we work hard to find things that are not obvious, and therefore, may not be good enough to even be worth trading. I find that my very best trades are the ones that I don't have to think twice about, those that jump off my trading screen when the stock is in front of me. I don't work hard to find them, they find me.
Third, when we trade just to make money we tend to sell our winners too soon. We want to lock in that good feeling of making a profit and don't want to ever feel the frustration of having a winner turn in to a loser. So, we exit the stock when it feels good or at the first sign that the trade might make us feel bad. This causes us to not ride out the inevitable pull backs along a longer term trend.
Finally, focusing on the money causes us to now manage risk effectively. When we think about how much we "could" make if the stock goes up then we might buy a position larger than we are willing to lose. By taking too much risk, we are more likely to not sell our losers when they reach a sell signal or exit our winners too soon because of the fear that the winner will turn in to a loser.
Rather than focus on money when you trade, I want you to focus on being right. Do your analysis on a stock and then ask, "am I right to buy this stock?" "Am I right to short sell this stock?"
Make your trading an intellectual exercise, a challenge to your brain to be right more than you are wrong. Take your focus off of the green and on to the black and white. The easiest way to do this is to only look at the charts and not look at your account's profit and loss indicator. I strongly believe that if you focus on making the right decision instead of focusing on making money, you will end up making more of it anyway.
Back To Top
Last week, I featured a strategy called Optimistic Consolidations. This strategy is unique because it establishes a condition for entry. We see that a stock has an optimistic pattern forming but we are waiting for a breakout through resistance as an entry signal. Here are the coments I made on each of the stocks featured last weekend:
T.TAH
T.TAH broke its downtrend late in July and has been consolidating at a rising bottom since then. Price volatility has become very low over the last week so I think it is good to watch this stock for a break up through short term resistance at $0.44. The Sentiment Stockscore has just crossed over 60 indicating optimism is growing.
T.NLG
T.NLG has been in play for about a month and is now consolidating right under its highs at $3. We may see it pull back from this resistance but I think it is only a matter of time before the stock makes a break through $3 and continues its up trend. Watch for the breakout.
T.COM
T.COM has been forming a rising bottom consolidation over the last few months, indicating that optimism is growing for the company. I think a break through $9 will set up a nice swing trade as the stock has good potential to then run upward to the next level of resistance at $11.
T.TD
T.TD is in a long term up trend but has been trending sideways for a few months under resistance at $57.50. I think the stock can make another step up if the stock can break through that price point. Watch for the breakout and look for an increase in volume on the breakout day as further confirmation.
3 out of 4 stocks (T.TAH, T.COM and T.TD) triggered their entry signal by breaking through the resistance price described in the feature. T.NLG failed to close above resistance and never triggered an entry, which was good when you consider what has happened since. Here are the updated charts for this week and some comments:
Back To Top
1. T.TAH
Nice breakout on Friday with strong volume, it is gone from an Optimistic Consolidation to a Bottom Fishing breakout pattern. I bought some today.
Back To Top
2. T.NLG
This stock demonstrates why it is best not to anticipate breakout but wait for them to happen. Resistance has held up on this stock and it was sent sharply lower by traders who got tired of waiting for the next step up.
Back To Top
3. T.COM
T.COM made a break early in the week and then went up really strong on Friday. Great gains but it is now too late to enter, you have to get these things when they make that breakout.
Back To Top
4. T.TD
T.TD has made the break through resistance and triggered a trade set up. As often happens, the stock has pulled back after the breakout but is still in good shape technically and looks like it has good potential to move higher.
Back To Top
References
Get the Stockscore on any of over 20,000 North American stocks.
Background on the theories used by Stockscores.
Strategies that can help you find new opportunities.
Scan the market using extensive filter criteria.
Build a portfolio of stocks and view a slide show of their charts.
See which sectors are leading the market, and their components.
Disclaimer
This is not an investment advisory, and should not be used to make
investment decisions. Information in Stockscores Perspectives is often
opinionated and should be considered for information purposes only. No
stock exchange anywhere has approved or disapproved of the information
contained herein. There is no express or implied solicitation to buy or
sell securities. The writers and editors of Perspectives may have positions
in the stocks discussed above and may trade in the stocks mentioned. Don't
consider buying or selling any stock without conducting your own due diligence.
Back To Top
|
