10 Dumb Things That We Can't Help Doing
Stockscores.com Perspectives for the week ending April 13, 2012
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In this week's issue:
I have put together the Itinerary for our Active Trader Expos that will be held in Calgary, Vancouver, Toronto and Montreal over the next month:
8:30 - 9:00 Welcome to SCATE 2012
9:00 - 9:45 - The Basics of Stock Analysis and Trading
Trust the message of the market with simple ways to analyze any stock. Learn how to manage risk to avoid big losses while letting profits run. Learn the signs that it is time to exit a trade.
9:45 - 10:00 - The Active 5 Offer from Disnat
The best offer for new brokerage clients that Disnat has ever offered. Learn why JD Power and Associates has ranked Disnat the number one broker for Canadian traders three years in a row.
10:00 - 10:30 - Managing Your Retirement Portfolio in Only Minutes a Day
The market is not challenging, it is just different. Tyler will show how you can manage your portfolio with less time and less stress, taking advantage of the volatility instead of being hurt by it.
10:30 - 11:00 - How to Make a Living Trading
The Worm strategy requires you work the first hour of the day. Pullback Plays can be done in less time with your research work done in the evenings. Trading does not have to take a lot of time, just sound strategies.
11:00 - 11:30 - The Mindless Investor, Overcoming Your Common Sense to Make Money
Trading would be so simple if we just got out of our own way! Learn how to overcome some of the emotional hurdles that all normal people face when trading.
11:30 - 11:45 - Stockscores Stockschool, Investor, Active Trader and Mentorship Programs
For those who want to take their trading to another level, Tyler will outline the investor and trader training programs Stockscores offers.
11:45 - 12:00 - Tyler Analyzes Your Stocks
Tell Tyler the symbol of the stock you are following and he will provide his analysis using the lessons you have learned throughout the day.
Come for the presentations you are interested in. This event is free to attend but you have to register. For location details and to register, click here.
Commentary
I often say that normal people fail in the stock market. Normal people do predictable things that are destructive to their market performance; here is a list that most investors will find familiar. We have all made mistakes like these but mastery over the market requires you stop making these mistakes.
Hang On to Losers
I have not met a single investor who has been right on 100% of their trades (assuming they have been trading for some length of time). We all recognize that trading the stock market is uncertain and that we can't make money on every trade but most of fail to plan to lose. When you buy a stock, you need to know the point that you are willing to throw in the towel on a loser. When the market proves your trade wrong, get out and move on.
Take Too Much Risk
Most investors buy the amount of stock that they can afford instead of buying the amount of stock that reflects what they can afford to lose. The result is that the potential loss can be larger than the investor can handle both financially and emotionally. This leads to holding on to losers and making bad decisions because of stress. If you can't sleep well at night, you have too much risk.
Buy on Tips
Investors are constantly sharing ideas but it is rare for someone to share a stock tip and not have a financial motivation. People talk about the stocks that they own and we have to recognize their bias. If they own it, they like it and will only share the positives with you. Do you own due diligence on every stock you buy and make sure you look at both sides of the story.
Buy Too Late
We tend to believe in a stock when it goes up. This confirmation from the market can give the hesitant trader cause to take a position but often this comes after the stock has already risen a lot. The problem is, the higher a stock goes, the closer it gets to its top and the farther it gets from its bottom. That means the expected reward diminishes while the risk increases. If you chase stocks higher you can get caught holding the bag.
Fall in Love
The more you know about a company, the more likely you are to stick with a losing stock. I avoid knowing too much because it causes me to fall in love and ignore the message from the market. You can know just about everything there is to know about a company but if you miss knowing that one, critical and negative element that the market ultimately focuses on, you can lose a lot of money.
Seek Confirmation
You buy a stock and it starts to go down, putting you in a losing position. What do most people do? Seek confirmation by looking for bits of information to justify their trade and help them escape the pain of holding a loser. We are heavily biased when we seek information about the stocks we own because we want to feel good. Ultimately, our quest to escape pain leads us to more pain because we hang on to a losing trade when the market is telling us to get out.
Invest with a Rear View Mirror
We are often guided by our associations; instead of looking forward we make references to the past. For example, an investor my remember the explosive trends that Silver stocks made a few years ago and constantly be looking for opportunities in that sector, hoping to relive what once was. The problem is that the market does not look backward, it is looking down the road and what will be the next hot trend.
Be Traditional
Most people are making investment decisions using traditional methods and means for analysis. I don't know too many people that are still popping a cassette in to their Walkman but that way of listening to music could be considered modern compared to how some people analyze stocks. Successful traders are using modern methods and powerful software to find and execute trading opportunities.
Trade with Fear
Fear is a self-fulfilling prophecy. The golfer who is afraid of hitting his or her ball in to the water hazard often does. The race car driver who fears hitting the wall has a greater chance of crashing and getting hurt. This is the power of focus and traders who succeed put their focus on success rather than a fear of losing.
Expect that Success Will Come to Them
As Yoda once said, "Do or do not, there is no try." By now my kids are sick of hearing me tell them this but the message is simple. You don't get successful at anything by trying, you must make success happen. Success does not care how nice a person you are, it is attracted to hard work and determination.
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I did a simple Market Scan on Friday to find good trades. I set it up with the following filters:
Abnormal Activity = Abnormal Day Up
5 Day Resistance = Break Out
Number of Trades > 250
I then inspected the charts with a few questions in mind:
Is this stock well in to an up trend already or just getting started?
Has there been a show of optimism in recent market activity?
Are investors showing a willingness to break this stock through a threshold of fundamental value?
The chart pattern can answer all of these questions, here are some stocks to consider:
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1. CNIT
CNIT has been a hot but volatile stock lately, it pulled back to its upward trend line and made a good bounce higher on Friday with abnormal trading volume. This one requires a more watchful eye because of its volatility. Support at $1.09.
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2. T.CDV
I featured T.CDV to my daily newsletter subscribers during the trading day on Friday. Nice break from a pennant pattern with abnormal price and volume action after the company announced good earnings. Support at $1.99.
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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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