More Than Dead Words
Stockscores.com Perspectives for the week ending April 9, 2006
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In this week's issue:
Moses had his Ten Commandments.
Letterman had his Top Ten.
This week, I present my Ten Simple Rules for Trading Stocks:
(in no particular order)
1. Plan to sell the losers - before you buy a stock, plan to lose. Don't think about how much money you are going to make, or what you will do with the winnings you take out of the market. Think about how much you will lose if you are wrong. Identify the point where the market will prove your investment decision wrong, and plan to sell when the stock gets there.
2. Don't plan to sell the winners - so many investors set price targets for their stocks, the point that they will sell the stock to lock in a profit. Rather than do this, only sell the stock when the market shows that the stock is more likely to go lower than higher. If a stock is winning, why let it go? Have patience with the strong stocks, and let them run.
3. Be picky - once you are good at reading stock charts and utilizing the Stockscores.com indicators to separate good from bad, it will be quite easy to find good stocks. Don't buy good stocks, buy GREAT stocks. Be patient and wait for the trading opportunities that have the highest probability of success. Fewer trades can often lead to bigger profits over the long run.
4. Don't believe in the dream - promoters, the media, companies, brokers, analysts, newsletter writers and other players in the financial machine are all telling you what to buy and why it is good to do so. Don't belive anything you read, hear or see. Above all else, don't fall in love with the story. Too often, the stories are told by biased optimists. Trust only what the market tells you.
5. Don't wait for the market to prove you right - if your analysis tells you that a stock is likely to go higher from today, then buy it today. Don't wait a week until the stock has gone higher before entering. To be succesful, you have to be one step ahead of the crowd. Chasing stocks higher with the sheep will lead you to the slaughterhouse.
6. Recognize that the market never lies - market actiivity embodies everything that is known about a stock, both public and private. It indicates not only what people know, but also what people believe. Trust what it is telling you.
7. Don't trade because you have to make money - trading the market to pay the rent will change your psychology, and cause most people to make poor investment decisions. To trade successfully, you have to make decisions based on what the market is saying, and not what your financial needs are telling you to do.
8. Practice patience - selling strong stocks too early or jumping in to stocks before the market indicates they are likely to go higher are common problems that come down to a lack of patience. As humans, we seek out pleasure and often want to feel good now rather than later. Don't be myopic, timing is important when trading stocks.
9. Never get emotional - emotion is the enemy of the rational trader. When money is on the line, it is easy to let your heart get in the way of your head. Work on ways to avoid emotion in the investment decision making process.
10. Be disciplined - the most important rule is to have the discipline to stick to the other 9 rules. Trading is simple, but not easy. What makes it difficult relates to the simple fact that we are human, and we have to fight with the irrational forces that act in our decision making.
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Pull backs in long term up trends are inevitable. When they occur, they serve to recharge buying interest and shake out some potential sellers. What is important with a pull back is that it not retrace more than 50% of the recent gains.
I look for a series of down days off of a new high that retraces a long term up trend. The stock is likely to resume its upward trend when volatility diminishes and the stock starts to close above its open.
Volume will tend to be light just before the stock inflects and resumes its uptrend. StockSchool Pro members can scan for this strategy using the Pull Back Plays 2 preset strategy scan.
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1. V.MAI
V.MAI went on a nice run that stalled about 10 days ago when the sellers decided it was time to take some profits. The pull back was a series of 6 red candles that turned to green on Thursday. Volume is light and volatility is low, setting up for a quick reversal back in to the up trend that should test the highs at $1.60. Swing traders will want to consider this stock but jump ship if support at $1.15 is violated.
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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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