Trading Tidbits
Stockscores.com Perspectives for the week ending April 28, 2012
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SCATE 2012
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In this week's issue:
Our first Stockscores Canadian Active Trader Expo in Calgary was a great success; it was completely packed and attendees learned some of my secrets for trading the market.
Sunday the 29th is the Vancouver event; the morning session is now full so we have added an afternoon session. To register for this or the events in Toronto and Montreal, click here.
There are little tidbits of wisdom that I have picked up over my years as a trader; here is a list of some things that all traders should take to heart:
Don't apply logic to the stock market
So often I see people make decisions in the market on what makes sense to them. It makes sense to buy stocks when the company insiders are buying. It makes sense to buy stocks that are making positive announcements. It makes sense to listen to what the President has to say about the company's prospects. However, all that matters is what the market thinks of the company and whether the buyers are more motivated than the sellers. So often, the market does things that do not make any sense until we later learn of what motivated the market to do what it did. Remember, the market is forward looking, most times, what makes sense is judged on what has happened in the past.
Never average down on a losing position
Buying more of a bad thing is not much different than continually betting on a losing horse. Winners win for a reason, and until your stock starts to show that it is a winner, don't add more to a bad situation. If you like a company whose stock is losing you money, sell it. You can always buy it back later when the market starts to like it again.
Successful investing is not about being right, it is about making money
Most good traders are usually wrong. They will lose small amounts often and make big amounts occasionally. What matters is how much they make over a large number of trades. Don't try to always be right, simply work to make money.
Resist doing what feels comfortable
We have a tendency to look for the market to prove our decision is a correct one before we make our move. The problem is that this often means we are too late to capitalize on the opportunity. We have to move before the crowd, and that often feels like a dangerous thing to do.
Anyone can get lucky in the short term, only good traders succeed in the long term
Don't confuse making money in the stock market with knowing what you are doing. It is easy to get lucky on a stock or on a sector and enjoy gains that give credence to your analysis method. However, short term winners often give back all of their gains because they fail to recognize their success as luck.
Be patient with your winners, not with your losers
The natural tendency is to sell your winners too early and hold on to your losers, hoping for a turnaround. A simple, but not easy, thing to do is reverse this tendency. When the market proves you right, wait to sell on a signal that indicates the stock is likely to go lower. When the market proves you are wrong, let the trade go and take the loss.
Publicly available information is priced in to the stock, don't rely on it to make decisions
Once information, no matter how good, is made public, it loses its usefulness to you.
Public information is priced in to the stock by the market of investors. Information only has value to you if the market has not priced it in.
Make sure your trading strategy has an edge
A trading strategy is only worth trading if it can be shown that it consistently makes money. Establish your trading rules and test them over a variety of market conditions so you know that it is effective. Time spent testing a strategy to prove it is a money maker can save you a lot of money in the market.
People lie, markets don't
I have learned the hard way to never trust what people say, their actions say much more. Learn to read the market and understand it's message. No matter how much insight a person may have, recognize that they have a bias based on their own emotional attachment to money.
It is easier to trade with the trend than against it
Understand the mood of the market and trade with it. Don't chase euphoria, but seek to buy stocks that are in the control of the buyers. Don't sell on fear, but seek to sell stocks that are under seller control.
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You may have already heard the saying, Go Away in May, a reference to the relative underperformance of stocks from May till October. The markets are looking like that could hold again this year making it necessary to either play defense or work to find stocks trading on their own story.
Most of the stocks I discuss here are from the second group, stocks that are trading on their own story and able to make a move despite what the overall market is doing. This week, I thought I would help you with a way to find some defensive stocks to get you through the summer.
In times of uncertainty and sideways markets, investors are more likely to seek out yield in the stocks they hold. We can filter the market for stocks paying a good yield and with a good Sentiment Stockscore to help us find opportunities.
Using the Market Scan, I set the filters to look for stocks that pay dividends, with a yield of > 3% and a Sentiment Stockscore of 60 or higher. I like to set a minimum liquidity requirement, you can use 200 trades a day for the Canadian market or 1000 trades a day for the US market.
Doing this found 218 US stocks and 35 on the Canadian market. Here are a few that have decent looking charts:
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1. EWS
EWS is the Singapore Index Fund ETF. It is breaking out from a consolidation pattern and has a historic yield of 4.35%
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2. XTEX
XTEX has slipped lower over the past few days but it has a good looking weekly chart and has paid a yield of 7.42% at the current price.
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3. T.SPB
T.SPB is more of a stable than good chart but with that stability comes a historic yield of 8.04%. A break out of this pattern should mean a good capital gain as well.
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4. T.T
T.T has been one of the great slow and steady performers on the TSX over the past two years. A good momentum play that also has been paying a yield of 4.17%.
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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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