Plan the Trade, Trade the Plan
Stockscores.com Perspectives for the week ending April 25, 2009
|
| Upcoming Events |
Weekly Market Minutes
The weekly Market Minutes video is uploaded to the site every Monday night. To get Tyler's outlook on the market and tips for better trading, take a look at this free video. The link is found on the home page of Stockscores.
|
| 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:
Trading decisions are often made in the blink of an eye, the result of a sometimes emotional thought process. Maybe you want to find a stock that will go up to pay for the loss you just suffered on a previous trade or you enter a trade because you are tired of watching it go up without you. These impulse decisions often lead to losses and show why it is important to have a well thought out plan when making a trade.
Planning your trades means you will likely trade less, leaving many marginal opportunities for those that have the best profit potential. When you make a plan you establish a series of criteria for entering and holding a position. You write down those criteria and check to see how your stock is trading relative to your plan. If it is behaving the way you expect then you have understood the stock correctly. If not, it may be better to get out of the position.
The best trades are those that you have the most confidence in. Confidence comes from being proven right, from having the market live up to your expectations. You are probably not too sure of whether you are right or not if you find yourself monitoring your positions every possible moment.
A key to having a good trading plan is to have a good method. You need a good method for entering a stock and managing risk. You need a good method for exiting a stock. You need a good method for managing your emotions through the process. Once you have a method that works and is one you can believe in, you can write the plan. Plan the trade and then trade the plan.
A plan should at least answer the following:
What is my strategy for entry?
What is my risk tolerance?
What do I expect to happen after I enter the trade?
What has to happen for me to consider my decision to enter the trade wrong?
What are my criteria for exiting the trade at a profit?
What are the emotional obstacles that I will face and how will I overcome them?
How will I judge my success?
How will I learn from my mistakes?
Is all this worth the effort? The little bit of time that it takes to make and follow a trading plan should improve your performance in the market. Is it worth it to make a plan when building a house? Is it worth it to make a plan when starting a business? Most of us answer yes to these questions but fail to plan our trades. Why?
The answer lies in emotion. Too many traders treat the stock market like a casino. They make trades with the hope that they will make money just like a gambler puts down money on the hope their number will come up. Hope should not be part of your plan. If you are a trader who believes your success in the market is a matter of luck then you should probably close your brokerage account and head to Las Vegas. At least there they give you free drinks when you gamble.
Think when you trade. Impulsive decisions are not likely to succeed. Well thought out trades may not always succeed either but at least you will have a means to judge when you are wrong. When a trade ceases to go according to plan, it is time to get out.
Back To Top
Abnormal price movement with abnormal volume says a lot about a stock. It is like someone yelling at the top of their lungs, "look here, something is happening!!!" But we can qualify abnormal activity by looking to see how the stock was trading before the abnormal move. The action is much more noticeable if the stock was in a narrow sideways trading range and then jumped up in price with strong volume. If the bottoms were rising in to the upside break then there is optimism to help the stock head higher.
This week I ran the Abnormal Up Market Scan to look for stocks that had a strong day to the upside on abnormally high volume. Of the 44 charts that came up, a few stocks looked good because they had the right chart pattern. I want to ignore stocks like MMM because they are not breaking from low volatility. I also stay away from a chart like ENR which was not breaking through resistance. Here are a few charts that look pretty good to go higher in the weeks to come.
Back To Top
1. EXBD
EXBD was pretty quite and stable under $15 but Friday it broke through resistance on heavy volume. With resistance at about $22 and support at $14 it has just enough upside to justify the downside risk.
Back To Top
2. WL
WL broke it downward trend line as it broke to the upside from a sideways price consolidation . Volume was very heavy on Friday so it looks like the market is optimistic about something. Support at $9.40, a close below that price would be a negative signal.
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
|
