Mothers' Lessons
Stockscores.com Perspectives for the week ending May 11, 2008
|
| Upcoming Events |
Toronto Events
Toronto Stockscores DisnatDirect Live Trading Events
Wednesday May 14th and Thursday May 15th
1:00 PM (Day Trading) and 7:00 PM (Position Trading)
Watch Stockscores founder Tyler Bollhorn as he goes through the process to identify and execute day, swing and position trading opportunities using the Stockscores Approach and the DisnatDirect trading platform. Real market conditions, real trades, a real educational experience! Seats are limited, you must register to attend this free event. Click Here to register
|
| Get the StockSchool Pro Free |
DisnatDirect named the number one Canadian brokerage for Traders by Surviscor! Open and Fund a brokerage account with DisnatDirect and receive the StockSchool Pro home study course free, including special Pro level access through the DisnatDirect client website. Offer only available to Canadian residents. For information, click here
|
|
In this week's issue:
This weekend is Mother's Day, and in the spirit of those who raise and guide us for life, here are 10 things that I think every mother should pass down to their aspiring trader sons and daughters.
1. Trade with an edge
Successful trading starts, but does not end, with a set of rules that has shown to consistently lead to profits. These trading rules should be tested across a variety of market conditions to ensure that they produce profits without portfolio destroying drawdowns. Once you have the rules right, you can work on following them.
2. Don't take more risk than you can tolerate
Masterful trading is about mastering your emotions and the key to that is not letting your fear of losing cloud your judgment. If you risk more than you are comfortable with, it is likely that you will break your trading rules. If you risk little you are less likely to care about losing and more likely to be a disciplined trader.
3. Never let small losses grow in to big losses
Before you execute any trade you should define where your exit door is. Establish the price point where the market will prove your entry decision was wrong and, if the stock gets to that price point, exit the trade and take the small loss. Don't let the hope for a turnaround make you stick with the trade and let a small loss grow in to a bigger one.
4. Never stop small profits from growing in to big profits
You will be right some of the time, make sure that when you are right you let the profit run until the market demonstrates signs of a reversal. Remember that your profitable trades have to pay for the losers and earn you a return for your risk. The profit is in the patience.
5. Don't fight the mood of the market
The market can stay wrong longer than you can stay liquid so trade with the market's sentiment. If the buyers are in control, buy. If the sellers are in control, short. Learn to understand how to read the trend and don't trade against it.
6. Keep it simple
Winning traders rarely have a complex set of rules. You can over analyze the market and over optimize your trading rules, so be sure to keep your list of requirements relatively short and straight forward. Simple rules are easier to follow and easier to profit from.
7. Don't work too hard
Good trades are obvious, if you have to work really hard to uncover an opportunity then the chances are good that the trade is a marginal one. When the going gets tough, good traders get lazy.
8. Don't trade to fix past mistakes
What has happened in the past must be irrelevant to the trading decisions you make in the future. We all want to escape the pain of a recent loss, but taking a marginal trade in an attempt to turn the pain in to happiness is usually a quick way to add more pain. Every trade must stand on its own merits and not be guided by your emotional responses to past experiences.
9. Do track your trades
When a trade leads to a loss, you have bought yourself an education. Be sure to learn from that lesson by keeping your past trades in a journal to be studied and analyzed. As you collect a large number of trades you will likely see a pattern of mistakes that can be overcome with a change in your approach.
10. Find your passion
Trading is simple, but not easy. It will take great determination to master the markets so make sure you enjoy it. The love of trading will be the force to guide you to success.
Happy Mother's Day!
Back To Top
Bottom fishing is the quest for stocks that are inexpensive relative to previous levels, but show signs that the bargain is going to end soon. We want to look for stocks that are a showing a break from pessimism, an increased level of confidence that the stock is undervalued, and signs of optimism for the future. Filtering for these situations gives the investor a short list of companies to perform their necessary due diligence on before speculating on a change in trend.
Buying a stock that is in a long standing down trend can be as dangerous as stepping in front of a freight train. It takes time for stocks to reverse trends, and buying what seems to be a bargain can be a crush to your portfolio. However, bargain hunting can be profitable if the timing is right. To effectively bottom fish beat-up stocks, you have to enter when there are signs that the downslide is slowing and a move back upward is imminent.
Market psychology takes time to reverse. When bottom fishing, we want to focus on stocks that have suffered a sell off and are cheap relative to where they once were. However, we want to also look for signs that market psychology is turning favorable on these stocks and that they are ready to head higher again.
This strategy focuses on three stages:
Stage 1 - a break from the show of pessimism
Stage 2 - a show of confidence
Stage 3 - a show of optimism
Stage 1 is essentially a breaking of the downtrend. If we draw a line along the top of the declining trend, we have defined the downtrend. A break of the trend arises when the stock can break upward and through that declining trend.
In Stage 2, we want to see signs that there is confidence in the break from pessimism. The market needs to show resilience that the downtrend is indeed slowing, and that the potential for an up trend is real. A consolidation following the break is a good show of this, and is more significant if it as at a level higher than the previous low. This is a rising bottom.
Finally, we want to find signs that there is optimism about the future of the stock. A breakout from a rising bottom is Stage 3.
I ran this scan on Friday's data and found 2 stocks with charts that I like:
Back To Top
1. V.ARN
after V.ARN broke its downward trend line mid April, the stock made a little pull back which was broken this past week as the stock bounced off of its newly formed upward trend line. We may see it pull back again soon as it has now moved away from that upward trend line, but I like the longer term potential for the stock to move up toward $4. Support now at $1.95.
Back To Top
2. PNSN
PNSN broke its downward trend line early in April and has been trading sideways since, building a good base for it to launch from. On Friday, the stock broke through short term resistance with good volume and the stock now has the potential to move toward the $18 - $20 price levels with support now at $10.
Back To Top
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.
Back To Top
|
