How To Trade The Stockscores Features
Stockscores.com Perspectives for the week ending May 8, 2009
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In this week's issue:
How do you play the stocks you or I find with the strategies of the Stockscores Approach? Since we are focused on trading rather than investing, the process is a little bit different, particularly with sizing positions. Here is a quick overview of managing trades.
We always manage risk by planning to limit losses. You will notice that I always quote a stop loss point on the stocks that I feature in the newsletter. The difference between the entry price and the stop loss price is the risk per share. So, if I feature a stock at $5 and have a stop loss point of $4, the risk per share is $1. If you do not want to risk more than $1000 on any one trade, you would purchase 1000 shares.
This of course does not guarantee that the maximum you can lose is $1000, it is possible to lose more if you do not take the loss when the stock closes below support or if the stock moves quickly through your stop loss point without you getting out, which can happen if the stock gaps lower.
It is also important to realize that we plan to exit a loser if it closes below support, not simply if it hits support. Often stocks will fall to the stop loss point during the trading day but bounce back before the close.
If I feature a stock at $5 and it gaps up the next day to $6, it is probably no longer worth considering. I don't feature these stocks because I like what the company's are doing; I feature them because I see a good trading opportunity in them. The opportunity is dependant on price and goes away as the stock moves higher. In short, don't chase stocks higher.
Remember also that I am not providing investment advice and I have no idea what your investment goals and risk tolerance are. You have to due your own research and due diligence to determine if the trade is right for you. There is always a very real risk of losing money on any stock that I feature.
Once you are in the trade you will begin to look for an exit signal. If the stock closes below your stop loss point the exit signal is easy to determine - take the loss! However, it is a bit more complex if the stock is moving to the upside and is profitable.
As a general rule, I do not look for a profitable exit signal unless the stock has doubled its risk amount. So, the stock that I feature at $5 with a $4 stop loss needs to go up to $7 before I will look for an exit signal (this means the trade achieved $2 of reward for $1 of risk).
I will not necessarily sell the stock if and when it hits $7 since I want to let the winners do as well as they can. It just means that I look for an exit signal once the stock has doubled its risk amount.
What are the exit signals? If the stock is in an orderly upward trend I look for a break of the upward trend line. If the stock is moving up very quickly I will often go to an intraday chart, perhaps on a 15 minute interval, and look for a break of the upward trend on that chart. There are some more variables in the exit strategy which are expanded on in the StockSchool Pro course but this gives a good general overview of the concept.
Coming late this summer, Stockscores will launch a service that will do all of this stock work for you. We will identify opportunities in real time and highlight exit signals as they happen, all with an alert to your computer desk top or cell phone.
Finally, remember that the most difficult thing about trading is managing emotion. If you are to have any chance of following the rules do not take more risk than you are comfortable with. If you can not sleep well at night with the stocks that you own then you have taken too much risk and need to scale it back.
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I grew up trading Canadian penny stocks and did very well at that. As time passed I moved on to larger cap stocks but lately I have noticed a lot of the really low priced stocks have done very well. Using strategies that look for abnormal volume and breaks from good chart patterns has been good at identifying these stocks. It was this method that highlighted T.BWR a few days ago and it has moved steadily higher since.
This week, I did a market scan that looked for stocks listed on the Canadian exchanges, with a price of <$1.00, at least 100 trades and trading with Abnormal Volume. These are all filters on the Stockscores Market Scan tool. It generated a list of candidates, here are three names that have charts that I like:
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1. V.JNY
V.JNY traded very abnormal volume on Friday, much higher than it normally trades. The stock is breaking through resistance and closed near its high of the day, indicating that something appears to be happening with the company. Support at $0.055.
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2. T.VAA
After a lengthy consolidation phase, T.VAA broke through resistance Friday on very abnormal volume. Support at $0.025.
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3. T.IVW
T.IVW is breaking out of a pennant pattern with abnormal volume and the Stockscores indicators are where they need to be. Support at $0.12.
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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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