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Stockscores Trading Clubs
Edmonton
I will be attending the Edmonton Stock Club meeting on Monday, June 21 from 6:45 till 9:00. We will look at some new strategies, chart reading basics and other topics of interest to traders. The meeting will be held at:
The French Cultural Centre
8627 91 St
Edmonton
Anyone is welcome to attend.
Toronto
The Toronto Stockscores user group will be meeting Thursday, June 24 from 7 till 10 pm. I won't be at this meeting (I hope to come out to Ontario soon) but I am hearing that the meetings are going well and good trading ideas are being shared. The location is:
Humber College
203 Homber College Blvd
Guelph Humber Building
Room GH122 Ground Floor
Enter in Driveway A and park in Lot 3
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Stockscores.com Perspectives
For the week ending June 18, 2004
In this week's issue:
I have often said that trading the stock market is simple, but not easy. I can teach someone my rules in a Weekend course or through our Home Study course, and with a few months of practice, most people can be well versed in applying the Stockscores Approach to trading the stock market. However, my own inability to always follow my own rules proves that understanding how to trade the stock market is very different than actually doing it. Why do I and so many others break the rules of the Stockscores Approach and what can be done about it?
Let me begin with an example from my own trading this past week. I was applying a new day trading strategy that I have shared with our members on playing stocks that gap on the open. I entered a trade for 1000 shares of CYBX at $36.80 on Thursday, and added another 1000 shares to the position later in the morning to put my average cost at $37.55 on 2000 shares. I sold the position at $38.41 to make a profit of about $1700 after commissions.
I would never say that it is bad to make $1700 in less than an hour, but it was not the right thing to do. Applying the rules I have devised for selling on this kind of a strategy, I should have sold the position 10 minutes later for $39.43. For those not strong in basic math, my mistake cost me about $2000.
Why did I make this mistake? What causes so many other traders to make mistakes like this, and some much more critical, and thus hinder their profit potential in the stock market?
The answer is very simple; we have an emotional attachment to money.
Aside from the occasional mistake made in executing a trade order, most mistakes in the market are made because of emotional. Therefore, it should be the goal of every trader and investor to keep emotion out of the decision making process. Here are some of the reasons why we get emotional, and some possible remedies:
Too Much Risk - if the loss potential on a stock trade is more than the trader is comfortable with, then the trader is more likely to not exercise a stop loss order, or sell too early to avoid a loss if the stock should reverse.
Remedy: Take position sizes that you are comfortable with. If buying 1000 shares means that your stop loss point will result in a $500 loss, make sure you are comfortable with losing $500. If not, take a smaller position.
Lack of Confidence - you have to believe in the strategy that you are applying in the market. If you are unsure about whether the strategy really works, then you will second guess it when you are in a position, and may exit a winning trade too early.
Remedy: test your strategies until you have convinced yourself that they work. Then, apply the strategy with less risk than you are comfortable with. Make sure that the strategy works in real market conditions, and when you have proven that to your self, increase the amount of risk that you take.
Lack of Focus - the other day someone commented to me that day trading was better than working. Make no mistake, trading is hard work and requires focus. It is hard to make the right decision when distracted by your job (the one you are actually supposed to be doing when you are trading from the office), kids, spouse, dogs, the golf tournament on TV or the sunny weather beckoning you to the golf course.
Remedy: trade when the conditions are right and be disciplined to avoid distractions. I know, easier said than done.
Undercapitalized - like any business, trading requires capital. If you are depending on your trading to pay your bills, then you need to have enough capital to realistically make enough to pay your bills. If not, you put unnecessary pressure on your trading decisions to make money, and that leads to mistakes.
Remedy: as a general rule, a good trader can make 1% on their capital a day. So, if you have $10,000 in your trading account, you can make $100 a day (this gets harder as the size of your account goes up, it is harder to make $10000 a day with a $1,000,000 account). However, keep in mind that this is once you are good at it, and can keep emotion out of the equation.
A Good Memory - nature has equipped us to avoid pain. As a result, the memories that stand out most in our mind are those that caused us pain. Anyone who has been stung by a bee knows that it hurts, and will go out of their way to avoid a bee. That avoidance of pain is often stronger than the pleasure of eating sweet honey, so the effort to avoid a bee will be stronger than the pursuit of eating honey. In trading, we remember the bad feeling when we took a loss, or the negative feeling that we felt when a winner turned in to a loser. As a result, we place greater emphasis on avoiding the pain of losing than on the pleasure of winning.
Remedy: remind yourself of the probability of something negative happening. If I do an analysis of my trading records, I know that following my selling rules yields the best profit over a number of trades. The occasional loss that evolves out of a good trade set up is a price to be paid for the numerous profitable trades that come when I follow my rules.
Every time I teach a course, I remind the aspiring traders that they will make mistakes despite it seeming so simple to make money in the market. Trading the stock market is not easy, and mastery over your emotions is the most difficult thing for traders to learn. However, focusing on achieving that mastery can yield great rewards.
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This week, I applied the Stockscores Simple market scan to the Toronto Stock Exchange. This strategy seeks out stocks meeting the basic criteria of the Stockscores Approach to position trading (holding stocks for 3 days to 3 months). Sentiment Stockscore above 60, Signal Stockscore above 80 and a high probability chart pattern are what we are looking for. The scan revealed 18 candidates, and the following charts stood out:Back To Top
1. T.AXP
T.AXP is breaking to a new high after a lengthy period of trading below $27. There was some extra volume on the breakout from the cup and handle pattern, and the rising bottoms leading in to the break are an indication of growing investor optimism. If support at $26 is violated, then I would consider this a false breakout. Disclosure: I purchased some of this stock today for a family member.
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2. T.CNI
T.CNI represents a break from a sort of head and shoulders bottom pattern, which is a good indication of a trend reversal. Upside potential is likely limited to $16 in the short term, but the break through resistance today gives the stock decent potential to move toward the next ceiling. Support on the stock is at about $13.25.
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3. T.MTM
The chart of T.MTM is a good example of the market's psychology switching from pessimism to optimism. From January till May, falling tops dominated the price chart, but since May, the stock has switched to making rising bottoms. This has moved the Sentiment Stockscores higher and to the important 60 mark, and today the Signal Stockscore is spiking upward because the stock is working through resistance and trading somewhat abnormally to the upside. Support is at about $2.10, and I would consider a move through that floor price a negative indication. Disclosure: I purchased some of this stock for a family member today.
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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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