When to Say No to the Trade
Stockscores Foundation for the week ending October 31, 2017
In this week's issue:
In This Week’s Issue:
- Stockscores Free Webinars –Day Trading and Investing Webinars next week
- Stockscores’ Market Minutes Video – Understand Algorithms
- Stockscores Trader Training – When to Say No to the Trade
- Stock Features of the Week – Are Canadian Energy Stocks Bottoming?
Stockscores Free Webinars
Go to the Upcoming Events area of Stockscores.com to register for these upcoming webinars:
How to Become a Successful Day Trader
Nov 08, 2017 6:00 PM PST
Stockscores founder Tyler Bollhorn will walk you through the components of running a profitable day trading business. During this webinar, you will learn the importance of trading well tested strategies, practicing good risk management and having a methodical process for finding and trading opportunities.
How to Become a Successful Stock Investor
Nov 09, 2017 6:00 PM PST
Stockscores founder Tyler Bollhorn will walk you through process for managing your stock investment portfolio. During this webinar, you will see how he scans the market for opportunities, evaluates risk and reward potential and follows his holdings for exit signals.
What are the Economics of Stock Trading?
Nov 15, 2017 6:00 PM PST
Whether you are a long term investor or a short term active trader, it is essential to understand the economics of trading. How should you measure your returns? What are the risks? How much capital does it take to trade? What are the potential gains? These questions and more will be addressed during this webinar.
Stockscores Market Minutes – Understand Algorithms
The most successful traders use an algorithmic approach. This week, I discuss what that means, provide my market analysis and show the trade of the week on GM.
Click here to watch this week's video on Youtube
Trader Training – When to Say No to the Trade
As investors, our natural inclination is to seek out stocks that have good qualities. We look for reasons to buy the stocks we are considering and often forget to look for the negatives. Since there are thousands of stocks to consider and almost all of them can have some reason for buying them, it may be better to reverse how we approach the analysis of stocks. Looking for reasons not to buy a stock will emphasize a higher standard for the stocks you do buy and will help to improve your overall market performance.
Here is a list of common reasons I use to throw a stock out of consideration:
Too Much Volatility
Volatility is uncertainty. Virtually every good chart pattern that I use to find winners demonstrates a break out from low volatility. The narrower the range before the breakout, the more important the breakout becomes. If the stock's price is moving all over the place before it makes a break through resistance then there is a much greater chance that the breakout is false and will likely fall back. Ignore stocks that have a lot of price volatility before the break out.
Not Enough Reward for the Risk
A stock can go two ways, up or down, after you buy it. If the upside potential is not enough to justify the downside risk, then you should ignore the opportunity. I like stocks to have at least double the upside potential for the downside risk. That way, you don't have to be right even half of the time to make money, provided you are disciplined of course.
Lack of Optimism
Fundamentals do not matter. It is the perception of Fundamentals that matter. If investors are not showing some optimism about a company's prospects then it is likely that they are not paying any attention to the company's fundamentals. Look for rising bottoms on the chart as an indication that investors are optimistic, if there aren't any, leave the stock alone.
No Abnormal Behavior
The stock market is efficient most of the time. That means that you can not expect to consistently beat the stock market because all available information is priced in to the stock and your success at predicting new information can only be random. To beat the market, we have to look for break downs in market efficiency. I find that the best way to do this is look for abnormal behavior in the trading of a stock because it implies that there is significant new information playing a role in the stock's performance. I don't consider any stock that lacks abnormal behavior in its recent trading.
Too Far Up
The higher a stock goes, the riskier it becomes. I don't like to chase stocks higher. If I look at a 6 month chart of a stock and it has made more than two steps up, I don't consider it. A one day run of substantial gains is not a concern; I want to ignore stocks that have been in upward trends for some time. Look for stocks that are breaking from periods of sideways trading, not up trends.
Lack of Liquidity
The more often a stock trades, the easier it is to get in and out of it. Stocks that are not actively traded tend to have wider spreads between their bids and asks and it can be difficult to move in and out of the stock. Don't consider stocks that don't trade every day and they should trade at least 50 times a day but more is better.
Mixed Messages
I always try to look at a stock's chart on more than one time frame. If the message is not the same on both charts, I leave them alone. When day trading, look at the daily and intraday charts. When position trading, look at the daily and weekly charts.
Any time you think a stock has great potential, give this list a look and see if any of these factors show up. If so, it may be a good idea to move on and look for something else.
Back To Top
This week, I scanned the Canadian market in search of stocks making strong price gains. What caught my attention the most were up ticks in the really beat up Energy stocks. Many of these have made breaks of their downward trend lines and have formed rising bottoms. I don't think their charts are great but still worth considering for those who want to try and bottom fish some of these beat up names. Here are two to check out:
1. T.PGFT.PGF made a pretty good move higher last month but took a rest over the past month to build a good optimistic base. Yesterday, it broke higher again, establishing new support at $1.25.
Back To Top
2. T.CPGT.CPG broke its downward trend from a rising bottom yesterday, a good sign that a bottom has been established for the stock. Support at $8.95.
Back To Top
