The Complete Trader Package
Stockscores.com Perspectives for the week ending May 29, 2009
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Tyler Bollhorn at Gold Show in Vancouver
Tyler Bollhorn will be speaking at the World Resource Investment Conference on Sunday, June 7th in Vancouver at the Vancouver Convention Center. Tyler speaks at 12:30 and will be discussing the 10 Things That Every Trader Must Know.
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In this week's issue:
What makes a good stock market trader? A person beginning their study of the stock market will put their focus on identifying opportunities, how to find the next winning trade. There are numerous stock trading programs that focus on knowing when to buy. Some of these software programs have simplified the entry decision with green lights, others produce buy signals with seemingly very sophisticated analysis. Most all of these magical systems for trading the stock market miss the point.
Contrary to the beliefs of the neophyte investor, trading the stock market is not about knowing what to buy, or when to buy it.
The decision to enter a trade is only one part of the formula for successful stock market trading, and its mastery will not ensure success. While we have all heard of the guy who bought some hot stock early in its up trend and held on till it was worth a fortune, the reality is that most of these stories have an epilogue. For most who lack the complete suite of trading skills, stock market profits are nothing but short term loans.
Long term success in the stock market also requires the ability to manage risk effectively. How much of a stock do you buy once you have identified it as an opportunity? More importantly, when do you decide that the market has proven you wrong and it is time to take a loss? For many traders, the quantity of stock purchased is dictated by the amount of capital at their disposal, and the exit point is driven by emotion and not analysis. Many traders turn in to long term investors because they would rather ride out a loser instead of take a loss.
Suppose that the trader has evolved in to a very good stock picker, and has a firm grasp on proper risk management techniques. Are they now ready to take the market bull by the horns? Unfortunately, they are only half way there, because the other half of the trade is something called selling. I find that this is where most aspiring traders truly lack skill.
The stock market is a probability game, which means that each of us can not expect to be right all of the time. Our success is dictated by how we do over a large number of trades, and should never be judged one trade at a time. We must accept the idea that our winners have to outweigh our losers, which makes the ability to know when to sell so important.
This is a double edged sword, for we must learn to minimize losses by selling stocks when the market proves us wrong, but also let profits run higher when we have made a good decision. It may feel good to sell a stock that makes you a thousand dollars in a very short time, but selling a thousand dollar winner is foolish if the stock is destined to gain another four thousand dollars. Limit downside, and let profits run.
The ability to identify good opportunities is important. Knowing how to manage risk effectively is essential. Proficiency at selling stocks at the right time is also mandatory for success. However, above all else, it is important to have the discipline to consistently apply good methods. Emotion is the enemy of every trader, and all good traders must learn to fend off emotion at its earliest appearance.
This is what turns the simple act of trading in to a difficult endeavor. When we put cash on the line, we get nervous because most of us have an emotional relationship with money.
Good traders are cool when watching a profit grow, and unshaken when the inevitable loss presents itself. They look at the big picture of trading, and judge their success on a weekly or monthly basis, rather than by their last trade. There is an art to trading the stock market, and that successful trader know how combine many different skills to paint a very pretty picture of profit.
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Abnormal activity starts most upward trends so it makes sense to scan for stocks that are moving up abnormally on abnormal volume. I then inspect the charts of these stocks to see if the abnormal action is out of a period of sideways trading, I want to see that the stock is just starting an upward trend and not already well in to it.
I use the Abnormal Up Market Scan on Stockscores to look for these. I ran it on Friday and a couple of stocks stood out:
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1. KDE
KDE has been building optimism over the past two months after breaking the downward trend in mid April. The break on Friday was on abnormal volume. Liquidity is not great so large positions will be difficult to move in and out of. Support at $1.39.
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2. GROW
Very abnormal price and volume action on the GROW Friday, the stock closed near its high of the day and is breaking from a cup and handle consolidation pattern after a lengthy basing period. Support at $5.
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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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