Stockscores.com Perspectives
For the week ending November 15, 2003
In this week's issue:
What is the most difficult thing to learn to invest successfully? Believe it or not, it is neither knowing what to buy or what to sell. It is not understanding stock market basics, or learning the intricacies of technical or fundamental analysis. The most difficult, and most important, skill to being a successful investor is learning how to manage emotion. To be a disciplined, cold hearted trading machine.
Ask yourself if you ever sold a stock too early because you were impatient, or you wanted to feel the pleasure of locking in a decent gain. Perhaps you have sold early because you were simply scared that the stock you owned would go lower.
Have you ever had trouble dealing with ambiguity? You buy a stock because it has a good chart pattern but then sell because you don't know enough about what the company does, or fear that their business is one that you don't understand.
Do you find yourself worrying about a stock that is at a loss, even though it has not gone to your predetermined exit price and still shows the signs that got you in to the stock in the first place?
Have you ever bought a stock, sold it when it started to show a bit of weakness, then had to jump back in again when it started to perk up again?
Do you play the markets to avoid losing, or do you play the market to win?
Have you ever received a stock tip that left you completely confident that the stock was going to do well, only to watch it go lower? Did you ignore what the market was telling you because of the tip?
Have you ever jumped in to a bad looking stock or out of a good looking stock because of news that seemed to go against you?
Do you ever force yourself to look for opportunities when you know that you are going against the trend of the market? Do you trade the market because you have to make money to pay the bills?
When a stock position goes against you, do you search for fundamental reasons to continue to own the stock, and create an argument for why the message that the market is giving you is wrong?
Do you have trouble visualizing success and profitability, and instead trade with the expectation that you will be wrong and lose money?
Do you wait for the stock market to validate a decision before jumping in, only to find that you have missed the boat and entered the stock at too high a price?
Each of these questions are pointed at very common problems that hinder most investors' success. You should not feel bad if you have any of these problems, because they are common and universal. And, the hardest thing to do is overcome these problems because they are psychological. You don't need to see a psychologist, you just need to focus on being disciplined.
Not too many days go by when I don't make one of these mistakes, but each day, I get better at handling emotion and becoming a completely disciplined trader. When you make a mistake related to discipline, write it down. Go back and read your log of mistakes to see what seems to dominate your investing, and then take steps to correct it.
With discipline in investing, the rest is relatively easy. Think about what you are doing, and whether emotion is behind your decision, or whether you are taking an action that is motivated by investing savvy.
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There is a cycle to the market, which means applying the same strategies during the different stages of the cycle is likely destined to fail. What works in an up market probably won't work in a down market, making it important to adapt the trading approach to general market conditions.
For most of this past year, we have had a strong, upward trending move in stocks. I teach strategies like the Stockscores Simple, Long Term Breakouts and Gap Ups to capitalize on this kind of market, and these strategies have worked very well. Last week, I felt that stocks may have pushed too high, and would like fall back this week, so I discussed the Bursting Bubble strategy and provided some short sell picks. All of those trade ideas worked out well this week.
I continue to think that the market is more likely to go lower than higher in the short term, so this week I apply another strategy that is appropriate given that expectation. Using the Stockscores.com Market Scan tool, I applied the Short Term Breakdowns strategy, and found theBack To Top
1. ASIA
A lengthy descending triangle has been forming on ASIA, indicating investors are feeling a growing sense of pessimism. Today, the stock is breaking down through support from that negative pattern. Notice that the Sentiment Stockscore line is negative and falling fast, and the Signal Stockscore is spiking downward. That is because this stock is breaking down from a pessimistic price pattern. Looks like a good short selling candidate.
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2. COF
A sort of head and shoulders top with a move through the neckline and from a pessimistic falling top. This is a chart pattern that indicates this stock has good potential to move lower, perhaps to th $50 price level. The Sentiment Stockscore is moving down through the important 60 range, making this stock a good short sell candidate. This is an expensive stock that may be leveraged with a Put option instead of shorting the stock.
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3. RHAT
RHAT has made a great run higher over the past few months, but it may be that the up trend is rolling over and likely to see a pull back. The rapid decline in the Sentiment Stockscore tells a story of a stock that is losing the favor of its investors. Unless the overall market can hang in there, I think this one has good potential to go lower and worth considering for a short.
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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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