Stockscores.com Perspectives
For the week ending April 30, 2004
In this week's issue:
In the long term, the stock market is efficient. That means that good, well run companies will be rewarded with stock prices that reflect their strong business. In the long term, company fundamentals matter.
Stockscores.com is not a tool designed to find long term investments. We do not appraise company fundamentals, and care very little about what companies do. Stockscores.com is a tool for traders, who unlike investors, look for breakdowns in market efficiency rather than depend on it.
The assertion that the stock market is efficient assumes that the spread of fundamental information is fair, and that investors are rational. While this may hold in the long term, in the short term it is not always true. The reality is that some investors have access to fundamental information before others, and investors can be down right irrational at times. These break downs in market efficiency create opportunities for the trader.
There are three time frames that traders can operate in. Which you choose will depend on your time constraints, interest and risk tolerance. What does not change, however, is my opinion that savvy traders can dramatically outperform long term investors.
Position Trading - position traders are long term traders; they tend to hold stocks for five days to three months. Relying mostly on daily stock charts, they trade stocks during moves motivated by significant changes in the perceived fundamentals of the company. This style of trading does not require a lot of time, perhaps half an hour a day for someone utilizing the tools of Stockscores.com. Most of your market research can be done after market hours, allowing the trader to carry on a normal career during the trading day.
Swing Trading - swing traders will tend to hold stocks for one to five days, and trade price swings that often relate to emotion, rather than company fundamentals. The swing trader looks for trade confirmation on daily and intraday charts. This type of trading requires more time than position trading, but is still not a full time occupation. One to two hours a day of research and trade execution is what is typically necessary to identify short term trading opportunities that can provide very good returns.
Day Trading - often associated with risk, day trading is actually less risky than any other kind of trading provided the trader utilizes proper risk management techniques. A trader who is at the mercy of their own emotions should avoid day trading, which involves holding stocks for less than 1 day, typically only minutes or hours. The day trader takes advantage of significant new information that is motivating rapid and volatile price action. Day trading is a full time occupation that can reward savvy traders with significant financial reward. However, an uneducated day trader will typically suffer losses to those who know what they are doing.
The StockSchool Pro home study training course teaches specific strategies for all three types of trading, and shows the trader how to utilize the powerful tools of Stockscores.com to make intelligent trading decisions. For more information, check the Educational Products area of Stockscores.com.Back To Top
Each week I do Market Scans on Stockscores.com and present trading opportunities in this column that I think have a good chance of succeeding. I have done a number of Market Scans this week, and just can't find anything that I think is worth considering. The market in general looks weak, which means that I should lean toward short selling strategies. However, the markets are nearing support where they will probably soon bounce, so I am not crazy about short selling right now. I still think it is too early to buy stocks as the market will probably see a bit more weakness before it bounces, so buying stocks in general is not ideal. That means that we should focus on playing abnormal stocks, those that are trading on their own story and have less correlation to the market. However my market scans for abnormal stocks revealed nothing, likely because the market was so quiet on Friday.
I learned a long time ago that you can not force the market, that it is better to work hard when the market is trending and predictable, and get lazy when the market is uncertain. There is nothing wrong with holding cash, and that is what I think is appropriate right now. After quiet periods comes action, with lots of opportunities for the trader who is ready.Back To Top
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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