Stockscores.com Perspectives
For the week ending May 14, 2004
In this week's issue:
Have you ever entered a trade, only to later ask yourself why? Particularly when Daytrading, the stress of having to make a fast decision can cause us to enter a trade that does not really fit our criteria. It is not that we don't understand the criteria of the strategy we are applying; it is simply that we don't apply the strategy correctly because executing the strategy has not yet become instinctual.
In an interview with a hockey player that I saw the other day, this point was driven home. The player was asked how he prepares for the different players they are going to play, since the coaching staff will often tell them what the strengths and weaknesses of each player are. The answer to the question was that he simply practices over and over the play to be made in certain situations. He said that, as a player in a fast game, he does not have time to say, "Oh, that is number 32, he is not good on his backhand so I should make my move to that side." By practicing the appropriate move over and over, it becomes instinctual by game time.
The same technique can be applied to stock trading. In the evening, I will go through the stocks that I was watching that day, and apply my strategies. Where I see a stock that fits the criteria, I will quickly, and audibly, call out the requirements of the strategy so that I go through my strategy checklist. Of course, doing this when the market is not open for trading is silly, but it trains me to do it quickly, and instinctively, during the actual trading day.
While your spouse may think you are somewhat crazy for talking to yourself, there is something to be said for doing so. In a fast moving market, talking to yourself out loud stresses each criteria of your strategy, and references the practice that you did during the far less stressful review session that you do when the market is closed. Talking to yourself will build your confidence, and put you in a calmer, happy place where you can make the right decision.
You may wonder if we really have time to go in to self analysis in the heat of a trading moment, so let me be clear. We are not having a nice friendly conversation with ourselves, but instead, just running through a quick check list. For example, when I am applying one of my day trading strategies, I might rattle off:
Abnormal Volume
Message Candle
Low Volatility
Daily Confirmation
Risk Management
(This will probably make no sense to those who have not taken our StockSchool Pro course, but you get the idea).
That will take me maybe three seconds, and I will do it while I am preparing the order entry, so it really takes no extra time. However, it helps me ensure that the set up is appropriate, and gets me in to the instinctual rhythm that I have built up during my practice.
Stock trading is simple, but not easy. What makes it tough is the cloud that our emotional brain puts between rational thought and execution. Hopefully talking to yourself during the execution of a trade will help you apply your trading method properly.Back To Top
Fear is a powerful motivator, and often causes investors to sell stocks below their fair value. When fear is at work in the market, opportunities can arise to savvy traders. The Stockscores.com Market Scan helps identify stocks that are likely to bounce back from fear motivated selling using the Dead Cat Bounce strategy. This seeks stocks that have had emotional sell offs, traded extremely high volume, but manage to close above their open after hitting a new low earlier in the trading day.
This week, I ran this Market Scan, and it identified a number of candidates, of which two stand out as potential swing trades on the bounce back from oversold conditions.Back To Top
1. ADIC
ADIC has been falling since February, when the stock was in the $19 range. Today, it gapped down huge on the open and traded more volume than it has for some time. However, while it closed down for the day, it was still able to close near its high of the day and above its open, which is why the candle today is green. This stock has good potential to try and fill in the downward price gap.
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2. MERX
A similar chart to ADIC, MERX has been falling since the start of the year and made a signficant gap downward today. However, through the trading day some investors found reason to buy the stock off of the low, and it may be that the market pushed it too low this morning and selling pressure could now be exhausted. We may see this stock come back and fill in some of the downward price gap.
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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.
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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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