Long Term Trading Tactics
Stockscores.com Perspectives for the week ending May 18, 2008
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In this week's issue:
The longer you seek to hold a stock, the longer your analysis should look back. Most traders don't have the time or desire to day trade. Swing trading is not for everyone. So, if you are looking to trade stocks over a longer time frame, here are some things to consider:
The Sector Matters
All stocks have a correlation to their industry group. When you are looking for long term trades, this correlation will have a greater effect on the direction the stock goes. It is difficult for a stock to go in to a long term upward trend if its business sector is not also doing well. So, if you want to hold an oil stock for the longer term, make sure the chart for the oil sector is looking good as well.
Breakouts Should Look Back Farther
All stocks that go in to long term upward trends make a breakout through long term resistance. However, not all stocks that break through long term resistance necessarily go in to long term upward trends. When looking for a stock that going to do well, look for a break through a resistance level that has held up for at least two years.
Patterns Should Form Over Longer Periods
Chart patterns are predictive, but for predicting longer term trends you have to look for longer term chart patterns. A breakout from a pattern that formed over the last three weeks is not likely to predict a long term trend. Often, a pattern like an ascending triangle will build over 6 months and it is the break from these patterns that delivers a more reliable trade trigger.
Fundamentals Will Matter
A stock that goes in to a longer term trend will have to be guided by solid fundamental change, its business will have to be doing well. However, by the time you hear about how well their business is doing, it will probably be too late to catch a good portion of the upward trend. So, don't think that you can only buy stocks that the media is reporting to have good fundamentals. You must be a leader and buy stocks that will have good fundamentals, and the chart will tend to give you a better answer since most of us do not have access to good information that could predict the next strong trending stock.
Long Term Trends Will Have Pauses
Many traders catch the early stages of a trend but sell when the trend pauses or suffers a pull back. This is the market's method for cleaning house; the pull backs shake out weak traders who lack the emotional control to stock with a strong trending stock. To ride a long term winner requires patience and discipline. It is reckless to hold a stock that looks more likely to go lower than higher, it is prudent to hold the stock that appears likely to continue higher despite the short term hiccups.
No One Can Pick All Winners
You will be a loser from time to time. This makes it necessary to learn the difference between a winner and a loser. When a stock comes back to break important price floors, it is time to throw in the towel. Do not be patient with losers, instead, cut them loose.
Scale In to Your Winners
When you catch a winner and the stock is moving steadily higher, add to the position with each new entry signal. Let the profits of the first entry mitigate the risk of the second and continue this process as the trend develops. Build your position with the trend but never ever average down on a loser.
Winners Are Few and Far Between
The really big winning stocks, the ones that keep going up and up, do not come along very often. Expect to have a few losers, a few small winners and only an occasional big winner. But also realize that the patience to stick with the really big winners could pay for 20 or 30 losers and still give your portfolio big profits.
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This week, I ran the Stockscores Simple market scan strategy. This strategy is a good one when the buyers are in control of the market, which they are for all of the major market indexes that I track except the TSX Venture.
The strategy seeks stocks breaking from sideways trading patterns with abnormal price and volume action. It revealed a couple of stocks worth considering:
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1. T.NI
not a perfect pattern in the short term, the stock is breaking from a pennant pattern but it is also breaking its long term downward trend line. I also found that there are a few other Nickel stocks that are doing well right now which I think will help this stock. Support at $0.43
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2. JRJC
the stock broke its downward trend line some time ago and is now breaking to the upside from a rising bottom with strong volume supporting the breakout. With resistance at $40 and support at $21, the risk reward trade off is favorable here.
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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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