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Stockscores.com Stock Trading Clubs
Calgary Stock Trading Club
Wednesday March 10 - 7:00 - 9:00
University of Calgary
Murray Fraser Hall, Room 160
Anyone welcome, but please register
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Stockscores.com Perspectives
For the week ending March 5, 2004
In this week's issue:
Risk is in the hand of the trader.
Financial wisdom teaches us that stocks are risky, and we must protect ourselves by diversifying away that risk. By buying stocks in a variety of industries, we can minimize portfolio losses by letting the winners balance out the losers. Diversification is meant to insure our portfolio.
I have a different view on risk, and do not believe that diversification is the best way to protect against it. Instead, I think that stocks are risky the way a deck of cards are risky.
They are not.
Instead, it is the investor or stock trader that is risky. A person who sits down at the Blackjack table is taking a risk. A person that buys stocks is taking a risk. But why do a few people consistently walk away from the Blackjack table with a profit? Because they know how to manage risk, and play probability.
Stock trading is no different. Most people can not beat the market, just as most people can not beat the house in Blackjack. But those that do well in the market are good at playing the probabilities, and are good at managing risk.
How do you manage risk in stock trading? Rather than diversify, I think it is important to plan to lose. When you buy a stock, pick the price where you believe the market will prove your investment wrong, and plan to take a loss at that point. If the stock gets to that price, take the loss and move on.
That means that every stock should have a loss limit. You should never risk more than a small portion of your portfolio on one stock. That does not mean you can't put a large portion of your portfolio in one stock, it just means that your loss limit should not be that large relative to your overall portfolio size.
Stock trading is a probability game, but it is different than Blackjack, which is also a game of probability. In stock trading, we can control the size of the loss when we are wrong, but we can also have bigger gains when we are right. Aside from drawing Blackjack, the gains on a winning hand are the same as those on a losing hand. With stock trading, you can have losses that are a fraction of your gains if you limit the size of losses. This means that proper risk management can mean you make money even if you are not right more than you are wrong.
However, it all comes back to what is most risky about stock trading; the trader. If you do not have the discipline to limit losses, then you are taking a big risk when you buy stocks. You can be right more than you are wrong, but if your losses are bigger than your gains, you can still be a loser. Risk management is essential, and the best way to do that is to set a stop loss every time you buy a stock. Plan to lose, and let your profits run.
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I use the Sentiment Stockscore to measure the mood of the market. I like to buy stocks that the market is optimistic about, and I find that stocks with a Sentiment Stockscore of 60 or higher are showing optimism, and have a bette chance of going up.
With that in mind, I created a Market Scan to be used on Stockscores that seeks stocks that are moving above 60 on the Sentiment Stockscore. I ran this scan tonight, and found two stocks that look decent.Back To Top
1. FHCC
FHCC has been in a trading range lately, but broke out today and that brought the Sentiment Stockscore over 60 today. The stock has good potential to fill in the gap, so long as it does not move back below support at $21.
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2. SMSI
SMSI is breaking through resistance from an ascending triangle. This pattern is a classic reversal of a downtrend, and looks like it could follow through in to an up trend toward resistance at $4. Support on the stock is at $2.50, because the stock ran up in to the close today I would not be surprised if it pulls back in the short term.
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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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