Why Be Normal?
Stockscores.com Perspectives for the week ending June 17, 2006
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In this week's issue:
Traders who find a lack of success in the market often say, with a fair bit of cynicism, that they just need to do the opposite of what they have been doing and then they would make money. That means short sell when they buy and buy when they short sell. With this seemingly rational thought process they deduce that a shift in the entry decision would lead to profitability.
Sadly, that is not the case. The problem that most losing traders have is not with the entry decision but what they do once they have entered the trade.
Consider two traders who trade the same stock but in different ways. One buys the stock and the other short sells it at the exact same time. As the stock falls, what do these two traders do? What would you do?
Assuming these two traders are normal people, they will do very different things. The trader who bought the stock is losing money, so it is likely that they will hang on to the losing trade. Most people do this because they avoid the pain of locking in a loss. They hope for a turnaround.
The trader who short sold the stock is making money and he is more likely to cover the short on the first sign of strength. He worries about his profit turning in to a loss and yearns for the pleasure of making a profit.
Does this sound like the way you approach your trades? If you are a normal human being then it is likely that you have been programmed to fail in the stock market. We are most likely to hold our losers and get out of our winners. Simply, the fear of loss makes us patient with our losers and the desire for gain makes us very trigger happy when we have a profit.
Can you imagine what might happen to the trader who could reverse this emotional reaction?
If you have consistently lost money in the stock market it is likely that you have been patient with your losers and quick to sell your winners. To reverse your market fortunes you must figure out a way to change your emotional decision making. Hold the winners and let the losers go quickly.
This is easier said than done. For most people, pursuit of pain and avoidance of pleasure is not in their capacity. That is why most people don't beat the stock market.
Learn to despise big losses and enjoy taking the small loss. You must teach yourself that small gains are a waste of your time and maximizing profits on each trade should be your primary aim.
It is still important to listen to the message of the market and buy and sell when the conditions are right. Just don't let your emotional programming affect how you interpret the market's message.
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Chart patterns that predict upward trends are often characterized by abnormal breaks through resistance from periods of low price volatility, typically from a period of rising bottoms. The Stockscores Simple Strategy and Market Scan combines the Sentiment and Signal Stockscores with other Market Scan filters to find these chart pattern set ups. The result is a scan that will generate a good number of high probability position trading opportunities each week.Back To Top
1. BRLI
BRLI is breaking through resistance from an ascending triangle pattern that has been forming for about a year. While the rest of the market was suffering a correction this stock was holding up well. The break through resistance had good volume support which is another technical positive. Support at $18.80.
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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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