The Trader Test
Stockscores.com Perspectives for the week ending January 14, 2013
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| Upcoming Events |
Stockscores at VRIC
Stockscores will be hosting a special education pavilion at the upcoming Vancouver Resource Investment Conference Sunday Jan 20 - Monday Jan 21. Click here for free registration.
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| The Mindless Investor |
The Mindless Investor
New book from Stockscores founder Tyler Bollhorn
Coming Soon!
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In this week's issue:
Order the Mindless Investor book now
Have you read my new book yet? You should, I am sure it will make you a better trader! "The Mindless Investor" is not yet in stores but you can now order advanced copies of it. To do so, first log in to Stockscores.com and then cut and paste this link in to the address bar of your browser. Doing so will add the charge ($29.95 + $6.50 shipping) to your shopping cart so you can complete the transaction.
https://www.stockscores.com/cart.asp?caction=add&prodid=2254
Stockscores Market Minutes Video
The markets are hitting resistance which explains why trading activity slowed down this page week. Learn more by watching this week's Market Minutes video. You can watch it by clicking here. To receive email alerts any time I upload a new video, subscribe to the Stockscores channel at www.youtube.com/stockscoresdotcom.
This week's Trading Lesson
Here is a test.
If a bat and a ball cost $1.10 together and the bat costs $1 more than the ball, how much is the ball?
Do you have your answer?
If you are like the majority of people, you will say that the ball costs $0.10. That is the wrong answer since that would make the bat cost $1.10 ($1 more than the ball) for total cost of $1.20.
The right answer is that the ball costs $0.05 and the bat $1.05 for a total of $1.10.
The reason most people answer this question wrong is not because they lack the intelligence to get it right. The problem is that we are trained to answer questions quickly and that leads us to be impulsive. Instead of thinking, we get lazy and say the first thing that comes in to our mind.
Many people trade the market the same way.
Particularly when trading a hot and fast moving stock, we are inclined to not think about the trade but instead act impulsively. We fear missing out on the opportunity and will make the trade for the wrong reasons. That is the law of upticks; people lose their ability to think when a stock is moving up quickly.
That is why it is important to right down your trading rules. Traders often scoff at this idea, a simple check list of rules seems childish and unnecessary. Yet, how often have you gone back to look at a losing trade that you did and realized that the trade did not fit your requirements?
Think this approach is only for fast moving day traders? Sadly no, even long term trades, those with lots of time to consider, can succumb to impulsive decision making.
We are emotional beings with an emotional attachment to our money. When considering a trade, it is easy to see what we want to see and act impulsively because it feels good to think about the profit potential. Having that check list of rules is good whether you are making a fast paced day trade or a long term position trade.
Trade Well.
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This week, I created my own Market Scan with the following settings:
Gain/Loss today >= 3%
5 Day Resistance = Breakout
Number of Trades = 250 for All Canadian markets and 1000 for All American
This scan will look for stocks that had a good gain today through a price ceiling with decent liquidity. I run this scan almost daily, usually starting at about an hour after the open. It helps me to find stocks that are moving from boring trading patterns, a sign that something is going on.
The most important step is to inspect the charts. I want to see a break from a predictive chart pattern and I want to be getting in to a trend early. I don't want to buy stocks that have been going up for a while already.
Here are two that I found to be pretty good:
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1. T.CLQ
T.CLQ has been stuck under resistance at $0.75 since the middle of 2011 but broke through that ceiling today on higher than expected volume. A good chart as long as it can hold above support at $0.70.
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2. GFA
I bought GFA this afternoon as it moved through the $4.80 price level with some strong volume. It inched higher in to the close and has a decent break from a cup and handle pattern after a false start a couple of weeks ago. Support at $4.50.
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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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