The Intangibles
Stockscores.com Perspectives for the week ending June 10, 2007
In this week's issue:
What are the intangibles to market success, those things that an investor may not think of when considering whether they should manage their money themselves? When planning to make that leap they think about their knowledge of the markets, their ability to do good research and their choice of broker. Here are some things that we all eventually learn but often only after we have suffered some unexpected tuition payments to the college of trading.
Talent is Not Enough
I have met a lot of people who really know a lot about trading but could not execute in the market and earn abnormal returns. Understanding every technical indicator or industry fundamentals is great if you want to impress other investors at boring parties, but there is only one scoreboard that matters. Profit. You don't have to be the smartest person, you don't have to be the most well informed. To beat the market you have to be an executor. Don't whine when the market hands you a loss but instead, choose to make it happen. No one is responsible for you success except you.
You Have to Enjoy It
Trading is a challenging game. You are competing against thousands of other who all want to take your money. To take theirs, you need to be determined and have a passion for what you are doing. I find that good traders really love trading, they live for it and that gives them that added incentive to work hard and work smart.
Internalize or Lose
I have taught a lot of people how to trade the market and presented them with strategies that I have had success with. However, it is important that my students do more than just memorize the rules and apply them like a robot. They have to internalize those rules, believe in them and understand why they make sense. They have to make the rules their own, adapt them to their own risk tolerance and trading style and follow them instinctually.
You Must Not Care
It is ironic, but the more you need to make money from the stock market, the less likely you will. When you need to make money, when you are afraid of losing money, you are more apt to make emotional decisions. Crowd behavior is predictable because most humans make these emotional decisions in the same way. To beat the market, you can not be normal, you can not respond to emotion in the same way. The best traders are the ones who just do not care about the money. They have the same response to making money as losing it - emotionless.
Vegas Will Give Gamblers a Lot More
It is the attraction of fast money that brings many people to the stock market roulette wheel. Pile some cash in some speculative deal with the hope that it will pay a big fat return in a short amount of time. The reality is that this approach will do you no better than betting on 7 Black In fact, it will do you worse, because at least in Vegas they give you free drinks to numb the pain.
Love Is Cruel
Do you have a stock that you know everything about, one that you have held for a long time and done a considerable amount of research on? Do you regret owning it? The problem with falling in love with a stock is that we become blind to what the market is telling us. That means we hang on to it even it is a dog. Never get emotional about stocks.
The Stock Market Is Not Fair
There are always some investors who have better information and with that better information they can beat the market. Yes, it is not fair but you can't do anything about it so you may as well try to make money from it. Watch for abnormal activity, that is your best clue.
The Market Is Not Always Rational
It is dangerous to apply logic to the market because sometimes the crowd does not believe in anything more than fear and greed. What the market is doing may make no sense to you but we should all keep in mind that our opinion is totally insignificant in the grand scale of the stock market. Don't fight the market, it will always win.
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The markets were weak for most of last week but they pulled back to their trend lines and bounced on Friday which sets up for a swing trade that we call the Pull Back Play. Basically, you look for stocks that are in strong and linear up trends, have run away from their trend lines and the pulled back to them. With a good bounce off of the trend line, they often set up for a resumption of the upward trend, setting up a short term trend that usually has a 3 to 5 day hold period as the resumes its upward trend. If the stock decides to continue going lower and closes below the low of the pull back you take the loss and move on. Here are a few stocks that I found from the Nasdaq market that are good examples of this strategy set up.Back To Top
1. ERES
Strong upward trend for ERES, the stock came back to its trend line just as it should and bounced to close above its open on Friday. Should continue higher next week, support at $8.55
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2. TTEK
After hitting a new high a week ago TTEK spent this past week pulling back as profit takers took some money off of the table. After four days of weakness, Friday was an up day and make me think we see a few more up days in the next week. Support at $21.45.
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References
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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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