Know Your Enemy
Stockscores.com Perspectives for the week ending November 11, 2005
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Club Meetings and the Calgary Financial Forum
Stockscores Club Meetings - join Stockscores founder Tyler Bollhorn for an evening of stock market discussion. This month, Tyler will focus on Shenanigans - the games the market plays to take your money. If you want to know about some of the tricks that get played in the market to fool you in to making the wrong decision, don't miss this meeting. $10 to attend, free if this is your first meeting.
Vancouver Club Meeting
Click Here for Details and to Register
Calgary Club Meeting
Click Here for Details and to Register
Financial Forum Calgary
November 18 - 20, Roundup Center
See Stockscores Founder Tyler Bollhorn speak in the Headline Theatre, Saturday November 19th at 1:45
Click here and enter the code EX36 to get free tickets
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In this week's issue:
The stock market is a war. Every day, traders go to battle in the market, each hoping that they will extract their share of the profit pie. If you want to be a successful trader, you have to think of trading like war. When you are buying, your enemies are the sellers. When selling, you wage war against the buyers. You win the war when you make money on your trade.
It is easy to think of the stock market in less severe terms. We are led to believe that stocks go up for logical reasons and that applying sound judgment will lead to profit. But beware, there is much more at work in the market. There are seemingly illogical strategies being played, each designed to take your money. Know your enemy and expect them to do their worst.
In last week's newsletter I discussed the games that get played with the Level 2 screen. Do you also know about the tricks of the stock promoters? Do you know how Market Makers and Institutional Traders paint the tape to lead you astray? Are you aware that your brokerage may be working against your order to steal small profits on every trade? Do you know that the media can have a bias in what they report to you? Do you know how financial institutions sell you stocks that they have a vested interest in? Do you know how insiders hide the truth about the trading of their own stock?
Most retail investors believe that the stock market is fair. It is not fair. Most industries are not fair. There is a bias everywhere because everyone wants one simply thing from you.
Your money.
So get tough and treat your investing like war where no one is your ally. If you need a friend, get a dog.
I have three.
When you think you know who your enemies are and how they wage war against you, realize that you have only begun to learn how to win market battles. You see, your greatest enemy is the least obvious one. It is you.
Your emotions will do more to destroy your battle plans than anyone on the other side of the trade ever could. The trader who succumbs to fear and greed and lacks discipline in how they launch their market offensive is destined to fail.
From Sun Tzu's the Art of War:
"The general who wins a battle makes many calculations in his temple ere the battle is fought. The general who loses a battle makes but few calculations beforehand. Thus do many calculations lead to victory, and few calculations to defeat: how much more no calculation at all! It is by attention to this point that I can foresee who is likely to w in or lose."
To be a successful trader, you must come prepared with knowledge about how the market really works and abide by the rules of that reality. Learn how your enemy operates and then learn how to take their money.
Sun Tzu:
"It is only one who is thoroughly acquainted with the evils of war that can thoroughly understand the profitable way of carrying it on."
Finally, recognize that I don't want to draw parallels between the metaphorical war of making money to the real horror of military action. On this day of remembrance, I extend my thanks to all those who have fought for our freedom and way of life.
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Stock price is based on information, and how the market judges that information. Resistance is a horizontal price ceiling that represents the upper limit on what the market is willing to pay for a company. New information is often the reason why stocks break through this price ceiling.
However, our success in the market will not be great if we simply buy stocks because they are breaking through resistance. Another critical consideration is the price volatility of a stock before the breakout.
If a stock's price has not been volatile, relative to its own history, before a breakout, then the breakout is more important. Low price volatility indicates that investors have come to some consensus on what the stock is worth, making a breakout even more important.
This strategy looks for stocks that are breaking through resistance that has held up for at least four months. The longer resistance has held up, the more important a breakout is. While it is more difficult to break through long term resistance, successful breakouts tend to develop in to longer term upward trends.
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1. SWIR
SWIR is breaking out from a rising bottom consolidation pattern after 2 months of higher than normal volume, indicating the stock has been under accumulation. The breakout Friday was on good volume and the Stockscores are in the right place for a position trade set up. Support at $11.25.
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2. T.SW
Here is the Canadian listing of SWIR, the Stockscores are slightly different because of the effect of currency fluctuations. Support on the Canadian listing is at $13.40.
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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.
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