Trade The Hot Market
Stockscores.com Perspectives for the week ending April 4, 2016
In this week's issue:
In This Week's Issue:
- Stockscores' Market Minutes Video - How to Draw Trend Lines
- Stockscores Trader Training - Trade the Hot Market
- Stock Features of the Week - Biotech Rising
Stockscores Market Minutes Video - How To Draw Trend Lines
Trendlines are a really important concept in chart analysis but drawing them is often done wrong. This week, I explain how to define the trend and some basics on how to trade them. Plus, my regular weekly market analysis.Click Here to Watch To get instant updates when I upload a new video, subscribe to the Stockscores YouTube Channel.
Trader Training - Trade the Hot Market
The easiest way to make money is to trade the hot market. This rule applies to stocks, commodities, currencies, real estate, collectibles - anything that is traded between people. To put your odds for success at their highest, you have to trade where the action is.
Think back to when you had your best success. Perhaps you made great profits trading Energy stocks early this year. Maybe you made a fortune flipping houses 10 years ago. It is possible that many of you did well with dividend paying stocks this year. No matter when or where it happened, your best and most memorable success likely came when there was a boom in the market you were trading. You rode a strong trend.
If you revisit any of those trades, trying to re-live the feeling of easy money, you have probably felt frustrated. Formerly hot markets are not much fun when they have gone cold. How does it feel to trade Energy stocks? Lousy!
Assets are worth owning when their price is going up. This seems obvious but it is amazing how many investors I meet who own stocks because they were going up in the past, not because they are going up now. There are a lot of investors living in the past.
We have to live in the now but how do we know where the next hot trend will be? How can we find the hot market today?
I often talk about how I never know anything about the companies that I trade, that I only trade symbols, but that is a little bit of hyperbole. I do have an awareness of the types of companies that I trade; I want to know enough to be able to see trends in capital flows.
Each day, I do a Market Scan on Stockscores to see which stocks have moved up more than expected. This tool has a filter for Abnormal Price Gain, an important distinction from just looking for %gain. One stock could make a 3% gain but, if the stock is quite volatile, that gain could not be abnormal. A 3% gain for Microsoft is very different than a 3% gain for a penny stock.
To be able to compare gain on a level playing field, we have to consider the gain in consideration of the stock's historical volatility. That is why we use the concept of statistically significant price gain. We want to find the stocks that are gaining more than we expect given how the stock normally trades.
When we scan the market for stocks that are making statistically significant gains, we will find stocks that are up more than expected but there is a greater message there. Some stocks will be up because they are part of a hot market. I pay attention to the company names and look for themes. If I see a number of stocks from the same sector moving up, I know that there is something going on in that market.
As you follow the stock market, maintain an awareness for the areas of the market that are showing a disproportionate amount of strength. If you hear a number of times about a sector of the market doing well, take notice. Follow the action and play the hot market.
Doing so will have a significant effect on your performance.
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Each morning, I run a Market Scan strategy called Morning Movers. It helps me to find the stocks that are showing strength early in the day. I focus my attention on the daily chart, looking for a break from good patterns.
Doing this scan this morning, it was evident that many of the movers were from the Biotech sector. This group has been a poor performer over the past year but has been doing well over the past few weeks. The group may be in the early stage of a long term turnaround.
Here are two names revealed by my Market Scan this morning.
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1. GERN
GERN broke its downward trend at the start of March and has been building a rising bottom consolidation since. Today, it breaks up from that rising bottom, a good turnaround pattern.
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2. NAVB
NAVB is also showing the Bottom Fishing pattern that I love. Downward trend break, rising bottom, break from a rising bottom.
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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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