Be Fearless
Stockscores.com Perspectives for the week ending October 20, 2014
In this week's issue:
In This Week's Issue:
- Stockscores Canadian Tour
- Stockscores Education Center is Open
- Stockscores' Market Minutes Video - Think Slow
- Stockscores Trader Training - Be Fearless
- Stock Features of the Week - Broken Charts
Stockscores Canadian Tour
Stockscores will be in Toronto, Ottawa, Montreal, Edmonton, Calgary, Vancouver and Surrey in November. Learn the basics of the Stockscores Approach and see how the new Stockscores Education Center can make you a better trader.
For details and to register for one of these free events, click here.
The New Stockscores Trader Education Center is Open
We launched the new Stockscores Education Center last week; you can now use it by going to the new Education tab on the Stockscores.com toolbar. Lots of free lessons in the Getting Started area plus the online education packages in the Foundation, Investor and Active Trader bundles.
Here is a link to a video of the webinar that I did last week giving a tour of the Education area.
This area is about 80% complete right now with more content being uploaded daily.
Stockscores Market Minutes Video - Think Slow
Impulsive decisions in trading are often wrong because they favor fear (of loss and of missing out) and the avoidance of pain. That plus analysis of the markets in this week's Market Minutes.
Click here to view
Trader Training - Be Fearless
I think many traders have a hard time believing they can make money by buying a stock and waiting. Most of us are not taught to make our money work for us but instead that we must work for our money. Go to a job, put in the time and you get a paycheque. Work hard, and your paycheques will grow. But the thought that you can make money by putting your feet up is a difficult thing to grasp.
With that mental programming, most of us have difficulty holding on to our strong stocks and letting the profits grow. If we buy a stock at $1 and it goes up to $1.20 in a couple of days, we are likely to sell. In some ways we think of this fast return as good luck, not much different than buying a winning lottery ticket. We have a fear that someone is going to figure out that we have benefited from a mistake, and so we better get out now before we get discovered.
This thinking is strengthened when we take a trade that's less than ideal and it goes down as quickly as it went up. If we take a marginal trade we should expect marginal results, but somehow we only remember the negative feeling of watching a paper profit turn into a loss. We tell ourselves that next time we will sell at the first sign of weakness and crystallize the gain. Avoiding pain is human nature.
Our next trade is of higher quality but we sell it on a short-term weakness and lock in a quick but relatively small profit. While lost in self-congratulations we realize that someone named Murphy is writing the laws of trading, and we watch the stock march ever higher with us eating the stock's dust. We have jumped off a high-speed bus that is headed for Profit City.
What is behind this destructive behaviour? It's that deep-rooted emotional response to danger that keeps us out of trouble but also makes us avoid a greater feeling of fulfilment.
Fear is what makes us sell our winners too early and hold our losers too long.
The best traders are not afraid of holding on to strong stocks, they are afraid of holding on to losing stocks. What do you do when you trade?
If you are a normal human being, you do the opposite of what the pros do. Think about the last loser that you owned. As the stock fell lower and lower, what was it that you told yourself over and over?
"It'll bounce back eventually. I'll just be patient."
What your subconscious mind was really saying was, "It's much too painful to sell this loser and see that loss of my hard-earned capital. I'll hold on with the hope that it goes back to what I paid for it and then I'll sell." And of course, it continued lower because there was something wrong with the company and it deserved to go lower.
So what can we do to fight our destructive minds? How can we program ourselves to hold on to our winners and dump the losers? How can we trade without fear? Here are three of my seven criteria for fearless trading:
Only Trade Quality
Our fears are confirmed when we enter marginal trades. If you only trade the best opportunities, you will trade less but you will have greater success. This will put you on the road to fearless trading and help you simplify your trading approach. Write down your rules and do nothing unless every rule is satisfied. When you consider a stock, look for a reason to avoid the trade. If you can't find one, then you have a trade worth taking.
Buy with Confidence
The rules that you trade with have to have a foundation of success. You have to believe in your rules or you won't believe in holding the stock through the shakeout periods in the longer-term up trend. Analyze and test the strategy until you have proven to yourself that it works. Then trade it slowly without a lot of risk, so you can gain a greater level of confidence that it works.
Don't Watch the Scoreboard
Sports fans don't spend a lot of time watching the scoreboard during a game. It only matters when the game is over. In trading, the scoreboard is the profit and loss figure for your account. If you focus on the scoreboard, it is likely that you will lose sight of what's happening in the game. As a technical trader, all that matters to me is what the chart is telling me.
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There is a good chance, I would say 65% chance, that the correction is over. That means there is still a decent amount of risk that we will see a retest of the lows. However, the greatest problem I see right now is that most of the charts are broken and will take some to repair. Stocks that are showing strength are doing so from oversold conditions rather than from chart patterns that predict future gains.
In recent weeks I have discussed the potential for bottom fishing some of the really beat up sectors, like Oil, but I think that train has now left the station. Now, we have to wait for the market to gain some confidence again and the buyers start to act with enthusiasm.
No features this week, I could not find any charts that I liked enough. I see good basing patterns starting to build in the Small Cap stocks which have bounced back better than the overall market. I think that is where we will start to see the best opportunities in the next week or two, provided the overall market holds its lows.
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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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