The Market is Not Hard, it is Different
Stockscores.com Perspectives for the week ending March 25, 2012
In this week's issue:
I have put together a special event called the Stockscores Canadian Active Trader Expo. This is a half day trader training class that will improve your trading skills, whether you make 10 trades a year or 10 trades a day. SCATE 2012 offers a series of presentations on trading techniques, strategies, technology and psychology. Running from 8:30 - 12, the Expo can be attended in Calgary, Vancouver, Toronto and Montreal. Disnat is sponsoring the event so it is free to attend. For more information and to register, go to www.stockscores.com/scate.
I will be doing two presentations at the upcoming Money Show in Vancouver March 27 and 28th. For details and to register to attend free, click here
I will also be speaking in Calgary and the Calgary Resource Conference, you can register at www.cambridgehouse.com . I am doing my talk,
How to Identify Opportunities in Junior Resource Stocks on Saturday March 31 at 1:30.
Finally, anyone who has expressed an interest in this year's trader training classes, I will have the dates and locations finalized this week and we will get you some information. If you filled out a form in the past, you are on our list to get the update. If you have not yet done so, you can fill out the form at www.stockscores.com/learn
Market is Not Hard, It is Different
I am constantly hearing how the stock market is rigged or that it is too risky to play. So many investors have shied away from the stock market in the past few years because they have suffered losses and blame the market, even the entire financial system, for the loss.
The market is not out to get you. It does not care whether you make money or lose and is not trying to be difficult. To say that the market is challenging or rigged misses the point. The market is different but as long as there are stocks that go up and go down, there is an opportunity to make money. We just have to figure out ways to capture profits.
If you had an approach that worked for you during a specific market condition and you then apply that same approach to a different market condition, you should not expect to get the same result. There was a time when owning companies with recognized brands, sound management and good balance sheets was an effective way to make money. That has not necessarily been the key to making money in the past few years.
It is important to keep in mind that if you do what everyone else is doing, you will be average. Try very hard to not be normal because consistently making money in the market requires that you stay ahead of the crowd and evolve as the market evolves.
It makes a lot of intuitive sense to buy the stock of companies that make good profits or have growing businesses. Unfortunately, by the time you know about these companies, everyone else also knows about them and the opportunity has passed. Unless you are good at getting information before everyone else, using information to make investment decisions is not usually effective.
Each week, I do some market scans looking for the stocks that have done really well recently. I build a list of these winners and then try to find signals early in their upward trends that I can use to find the next winner.
For example, I will do a Market Scan filtering for stocks that are up more than 50% over the past 60 days and trading at least 1000 times a day. On Friday, that found 138 stocks. I then look through the charts and apply some statistical tools to look for patterns.
One simple thing that I see over and over again in these winners is that these stocks almost always start their upward trends with an abnormally strong up day. It is like the rocket engine is fired up shortly before blast off.
We almost always see a predictive price pattern leading in to that abnormal price gain, so I add that requirement on to my list of things to look for.
For example, here is a chart of one of the stocks that came up on the list:
Notice the optimistic pattern and the abnormal price action at the green arrow. That was the signal to buy. Also notice that this stock shot up and through resistance on this chart, something that would not normally happen. That is one of the changes I have had to make, to not worry too much about resistance. The numerous sell offs in recent years seems to have shaken out any weak holders of stocks, reducing the tendency for people to sell in to strength. That has allowed stocks to go up and through resistance with little objection from the sellers.
I then create a Market Scan to find stocks that are doing this sort of thing now. This trading idea is pretty easy to scan for, simply look for stocks having an abnormal day up and then inspect the charts to see if there is a predictive chart pattern in to the break. That is what I did for this week's Strategy features.
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Here are two stocks that I found with the strategy described above. T.NAE was also a good looking chart but this is a case of the company being merged (Pengrowth and NAL Energy are being combined) with another so it is not the kind of trade set up I want to take advantage of.Back To Top
1. DLGC
DLGC made a very abnormal price gain on very abnormal volume on Friday. The pattern in to the break up was not optimistic, so that makes me a bit reserved. However, I have seen a number of stocks do well with similar situations so I think this is one to check out, but with a cautious eye. The company announced better than expected financial results and that they have restructured their debt which may take away fears that they were destined to go out of business. Support at $0.78.
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2. GLUU
Broker Needham put a strong buy rating on the stock on Friday, helping it to shoot higher out of a pennant pattern with abnormal volume. The analyst put an $8 price target on the stock. Support is at $4.30.
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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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