Step By Step Learning
Stockscores.com Perspectives for the week ending June 11, 2011
In this week's issue:
Over the past couple of months, I have taught a number of people how to trade through the Stockscores Live Trading classes. Over the course of two days, students learn the components of chart patterns, how to put those components together to find the most predictive chart patterns, risk management, rules for entry and exit, the processes for identifying trades and how to put it all together to trade well. We spend a lot of time looking at charts and, on the final day, I actually look for and execute real trades so that all the pieces can come together in to something meaningful.
These classes give attendees every rule that I follow in my own trading. The content is the product of my 20 years of trading through trial and error. I encourage my students to not seek out other methods after the leave the class because I just don't think they need to do anything more than what I have taught them. The course content is complete.
This is not to say that there are not other ways to trade the market. There are probably thousands of ways to trade stocks and it is possible to come up with new ways by going through the same process that I go through when I am developing new strategies. However, I have found that there are also a lot of bad ways to trade the market and most people don't like to put in the time and effort to develop their own method to trade with.
When the class is over, I would say that my students feel a great sense of optimism although this may be countered with a feeling of being overwhelmed. There is a lot of information in these classes and for those who are early in the process of learning about trading, it is a lot to take in.
Taking one of my trading classes will not make anyone a successful trader. It is a good step toward that goal and one that will save the aspiring trader a lot of time and money. However, there are other things that need to be done in order to get to the point of trading success. Whether you have taken one of my classes or learned how to trade somewhere else, there are things that you need to do in order to be successful.
First, each student needs to go back to each individual trading skill and make sure that they understand it. The tendency is to start with the final result, which is to try and buy stocks breaking from a good chart pattern. However, there are many different skills that go in to that simple statement. What makes a good chart pattern? How do you manage risk? Each of these components can also be broken down in to many other skills.
I teach my class in small pieces and I am sure that most other trading approaches can be broken down in to small pieces as well. It is much easier to learn something when you take it one small, manageable component at a time.
Consider learning to play a song on the piano. A student who tries to play the song from start to finish after seeing someone do it once will fail. However, if they learn it one note a time, never moving on to the next note until the prior notes are learned, the learning process is simple. Learning the first note is easy, moving on to two notes and then three and four is also pretty simple. As long as you never move to the next note in the song until you have the notes before it learned, you will build up the muscle memory to make playing the whole song possible.
The same is true for trading. First learn inflection points, then use that to move on to support and resistance. Then optimism, pessimism and onward to the other components of chart patterns. As long as you go through each component one at a time and never move to the next until you understand the precedents, you will be able to read chart patterns. If you rush ahead and try to pick chart patterns without understanding each component first, you will have trouble.
Trading is simple as long as you give yourself the time to learn the basics first. Never move on to a new skill until you have its components skills understood. While this may seem like a tedious way to get to your goal, it will actually be the quickest way to success as you won't waste time trying to do something that you don't fully understand.
At the end of every class I teach, I always stress the importance of practice. Yes, you can learn the rules of trading in just a few days. However, every student has practice to do. There is no replacement for doing a skill over and over again until you get to the point that you don't have to think about it, that it becomes natural. Nothing is easy until you practice it.
Have you ever noticed how people who are good at something make it look easy? How do you think they get to that point? If you have a good set of basic skills, the only other things you need are time and effort. Take your journey to trading mastery one step at a time. If you try to fly, you will only crash and burn.
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The May pull back has continued in to June, leaving many investors shell shocked. I have been mostly in cash through this round of profit taking but still believe in the long term bull market that has been in place since March of 2009. We are now going through something very similar to last year, a pull back that ultimately ended in the early Fall before a strong continuation of the long term upward trend.
I believe the market has a 70% chance of bouncing back and making a short term bottom in the next one to two weeks. The major market indexes have now fallen to the region of their long term upward trend line and I have found that these trends lines provide very good support. Ideally, we will see a very weak open one day this week that turns around mid-day to have stocks end above their open and possibly up. This is a classic reversal signal that often comes in a situation like we find right now.
With that in mind, I am cautious to feature too many stocks right now, it is best to wait for the reversal signal. However, I found a decent chart this week that has been able to shake off the market malaise as it moves to highs that it has not seen since 2005. See below for the lone feature stock.
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1. CALP
CALP broke through resistance from a period of rising bottoms this week. The abnormal trading volume indicates someone has taken an interest in the stock. As a swing trade, I think it can move to $8 in the short term but it may do better than that in the longer term. The stock needs to hold above support at $6.95. Disclosure: I own 10,000 shares at an average cost of $7.48.
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References
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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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