How I Started Trading
Stockscores.com Perspectives for the week ending February 13, 2010
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In this week's issue:
I started trading when I was 19. That was 20 years ago and yet I remember the day that I made my first trade like it was yesterday. It was a rainy Spring day and I went in to the bank across the street from the gas station where I worked and transferred cash from my Visa card to my checking account. I then drove down to the brokerage office and deposited a relatively small sum of cash in to a newly opened brokerage account. At the time, it was more money that I had to my name.
Sitting at a table across from the broker, his name was Kevin, I listened to him explain a technology that was going to revolutionize the oil drilling world. He was a smooth talking, charismatic fellow, although a little rough around the edges. The kind of guy that would call you by your first name when you went in to see him at his office but would have no idea who you were if you ran in to him on the street.
He described what the company did, how they used existing ultrasound technology to do three dimensional seismic to find deposits of oil. The story sounded fascinating and I asked him to buy me shares in the company. I had no idea what he was talking about but I wanted to own the stock. Greed is a powerful motivator.
He looked at me a little nervously, I think knowing that I was probably not an appropriate candidate for this kind of stock. I probably looked so green he might have confused me for a leprechaun in search of gold but he then left me in the little room to complete the trade, coming back a few minutes later with a slip of paper that served as proof that I now owned a little piece of the dream.
The stock that I bought, I think it was called Sartis or Sardis or something like that, had already risen from somewhere around $0.25 to the $1.50 range. The market had latched on to the story, that is all it turned out to be was a story, and investors were clamoring to own the stock. I had joined the stampede.
The next day, the stock went up some more and I was elated. The analysts, which I later found out were paid promoters of the stock, were calling for it to go to $3. That would double my investment. Yet, the one day gain already felt great. Without sticking a single gas pump in to a single car I had made more in that one day that I would make over a few shifts as a petroleum transfer engineer. I loved this stock market thing.
That day marked the high point of my then short stock trading career.
On the second day of my ownership, the stock fell. I called Kevin and he assured me that everything with the company was good. On the third day, it fell again with the same canned response from Kevin the broker. Two weeks later the stock had fallen so much that I could no longer look at it. The pain was overwhelming and I ended up selling at a 50% loss. That proved to be my smartest move of all for it saved me from losing 100% of my investment. The company was eventually delisted.
Was Kevin to fault? Securities law might argue that he was for his failure to know his client and what were suitable risks for me to take. I have never been one to blame others for my misfortune, doing so only serves to limit my ability to prevent the same from happening again. I jumped in to something that I knew nothing about because of greed but, despite the loss, it was the best thing I ever did.
That first trade ignited my interest in the stock market. Trading stocks became my passion, figuring out how to beat the market my obsession. While my college room mates were out partying, I sat in front of my computer analyzing stocks.
I was, and remain, a geek.
It took me eight years before I got it right. Eight years before I made the kind of profits that gave me the financial success that attracts many people to trading. During that time, I got a degree in Finance, spent thousands of hours learning how the stock market worked, made countless mistakes that put me on an emotional roller coaster and probably missed out on many of things that young adults are supposed to enjoy. And yet, despite the struggle, I loved it.
What is probably the most surprising is that, when I finally started making consistent profits, my methods were so simple. After eight years, I could have scribbled my rules on the back of a napkin. However, knowing what to write came with a high cost.
I lost $30,000 over a few months because I had not learned that people lie, the stock market does not.
I lost $12,000 one morning because I had not learned the importance of managing risk.
I lost $60,000 over a month because I had not learned that you never add to a loser.
I lost $75,000 because I had not learned that the fundamentals and the perception of fundamentals are very different.
I lost $10,000 in a few hours because I had not learned that you should not turn your back on the market without some safe guards.
I missed out on likely millions because I had not yet learned the strategies that I use today.
These are only a few of the expensive lessons; there is not enough space in my head to remember them all after the thousands of trades that I have made.
Those lessons each have great value for they sit in my head making me less likely to repeat them. My knowledge allows me to make a living doing things that I love to do. I love trading, I love writing about trading, I love developing trading strategies, I love creating tools for trading, I love teaching people how to trade and I love to talk about trading.
I know that most people get in to trading because of its potential for financial gain. There is no doubt that is why I got in to it and I am grateful for the nice things that I am able to afford. But I also remember something that my uncle told me when I was a broke, aspiring trader in search of success. He said that the greatest thing that money can ever give you is freedom to do what you want to do. Trading has given me that.
The stock market is cruel, it gives the test first and the lesson afterward. The lessons are expensive if you let them be. I want them to cost you less and so I have created some things that I think will help.
The Stockscores Trading Desk - free tools that allow you to practice trading without risking your capital. It will soon be integrated in to Stockscores.com, but for now you can use it by clicking here.
The Stockscores Three Day Trading Class - a new course for anyone with an interest in trading, you will learn a very specific set of rules for entry, exit and risk management. Most importantly, rather than talk about what to do, I will show you what to do in real market conditions. It is the product of work I have been doing over the past two years to evolve and refine my approach to the market. Click here for details
Stockscores Analytics - for the trader who knows how to trade but lacks the time to do the work it takes to find opportunities, I will be providing real time buy and sell alerts on opportunities in Stocks and Exchange Traded Funds as I see them. Coming this month.Back To Top
Let the sector be your guide. It is easier to make money in individual stocks if the overall sector is strong. In the past, this required looking at the index sectors that companies like Dow Jones and Standard and Poors have created. Today, it is much simpler because we have Exchange Traded Funds that represent the sectors, countries, currencies, commodities and investment vehicles that can be used to do sector analysis.
I have created a group of Sectors populated by ETFs that you can use in the new Stockscores Trading Desk. To use them, go to http://tradingdesk.stockscores.com. Once logged in, go to Charting and you will the Sectors in the right sidebar.
I went through the charts of these ETFs and found a few that I thought looked like they could lead the market higher. The Nasdaq ETF (QQQQ), looks like it will make a bounce higher next week and within that group, Semiconductors is leading the way (SMH). In Canada, I like the T.XEG which represents the Energy sector because it has fallen in to support where it should bounce.
I then explored some of the stocks that make up the sectors that these ETFs represent. Here are a couple of picks for this week.
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1. GOOG
On the Nasdaq, I like GOOG as it has quieted down after its pull back and should head higher if the Nasdaq is able to find some bids. This is a trade that has a good risk reward relationship which makes up for its lower probability of success. Support at $5.27.
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2. T.NKO
Within the Canadian Energy sector, I like T.NKO. It has been pulling back for a few weeks and has come back to its long term upward trend line where it seems to be finding some buyer interest. Support at $95.00.
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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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