Trading Principles
Stockscores.com Perspectives for the week ending November 22, 2009
|
| Upcoming Events |
Toronto StockSchool Pro Class
Tyler Bollhorn will be teaching a special, one day StockSchool Pro class on December 5th in Toronto. This class is free but only open to clients of DisnatDirect. It is possible to attend if you open an account with them over this next week. For more information, contact Matt Cheese at DisnatDirect in Toronto, matt.cheese@vmd.desjardins.com.
|
| 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:
I spent the past few days at the Trader's Expo in Las Vegas. This is an exhibition for traders, showcasing new trading technologies, brokerages, education and other trading related products. I attend every year to stay in touch with the trading community and changes that are occurring in it.
This year, I found that the show seemed busier than it has in the past. There were more speakers and more attendees, perhaps indicating that more and more people are joining the ranks of traders.
I sat in on a few presentations and was mostly impressed with the quality of the questions that came from audience members. There are a lot of individual traders who take their business very seriously and know what they are doing. Despite my cynicism about late night infomercials targeted at aspiring traders, there are many regular folks making trading their career and who are able to make it happen.
Attending shows like this will make any attendee realize that there are a lot of different ways to trade. Each speaker that I listened to had their own unique method for taking money out of the market. As a result, there are a lot of contradictions between what different speakers say. It would be easy for someone starting out in trading to walk away from the Traders' Expo more confused than before.
However, I think that there are common principles that the best experts all share. While the rules they use to trade will differ wildly, it is these core principles that provide a common ground for the aspiring trader to build on.
1. Trade a Proven Strategy
While trading is an art, the foundation of all trading methods is a set of rules that can be tested and applied methodically. There are some successful traders who will say that they don't have hard rules but I expect that they each have repetitive procedures that they apply over and over. You can not succeed at trading if you are doing a set of rules that does not provide a positive expected value over time.
2. Manage Your Capital
All good trading systems have a method for controlling risk; anyone who fails to limit the downside will probably not last very long. Great stock pickers will only be profitable traders if they limit their losses when they are wrong and maximize their profits when they are right.
3. Avoid Emotion
This is probably the most preached criteria for trading successfully but it is also the most difficult to do. The markets can take normally even keeled people and have them blubbering like a baby. Trading without emotion requires confidence in your rules, without confidence you won't have the fortitude to ride out the hard times and follow your strategy.
4. Keep it Simple
As someone who trades and teaches, I have an easy time spotting the "experts" who probably have not made a whole lot of real money in the market. They typically have presentations that are difficult to follow and often contradict themselves. Trading systems that are so complicated that they can not be easily explained in a 15 minute presentation will probably not work. Their creator is probably a back tester and not a trader.
5. Nothing Works All the Time
The markets are much too complex and massive to allow for a set of rules that always yields a profit. Uncertainty is what all traders must deal with; those who are best at dealing with ambiguity will have a good chance of succeeding as a trader. Many rookie traders are looking for certainty and there are a lot of companies trying to sell systems that claim very high rates of success. Be suspicious of these and take seriously those who recognize that losing is a part of making.
I think it is also important for people to realize that they need to really like trading if they expect to be good at it. It is the passion for trading that will make you work hard at it.
"The harder I work, the luckier I get."Back To Top
When deciding what strategy to apply each week, I first look at the market indexes. From these charts I can determine what is the most likely direction for the market to take in the near term. That will determine my strategy.
For the past couple of weeks, I have been looking for short selling set ups because the market was coming in to resistance and had run away from its upward trend line. Toward the end of last week, the market rolled over and started to head lower.
For the week ahead, I think the market probably continues lower as prices are still well above the upward trend line of support. However, we are not talking about a move downward that is significant enough for the long term short seller. Once prices are down to the upward trend line, there should be a bounce and a resumption of the long term upward trend.
So, traders should look to short strength this week, playing off of the intraday charts to pick your entry points. Longer term traders should wait for the pull back to be done and buy the bounce off of the upward trend line.
For this week, I show a chart of the SPY to help everyone visualize the cycles of pull backs to the upward trendline. You can see that this cycle has repeated a number of times over the past four months. That cycle could end anytime, but it has been pretty reliable.
Back To Top
1. SPY
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
|
