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Stockscores Trading Clubs
The Stockscores Trading Clubs will be starting again in Calgary and Vancouver in September (tentatively the 8th for Calgary and the 9th for Vancouver).
The Toronto Stockscores user group will be meeting Thursday, August 26 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 August 21, 2004
In this week's issue:
Professional stock traders make money at the expense of the crowd. Crowds move in predictable patterns, and cause short term breakdowns in the efficiency of the market. Most investors are moved to action by fear and greed, and understanding how these forces act in a fast moving market can help to make profitable trading decisions.
How do you feel when a stock that you own is moving up quickly? How do you feel when a stock you considered owning, but don't own, is moving up quickly? Many investors get emotional in these situations, and make trading mistakes. Since the markets have not been really strong for the past few years, most traders are fearful of having a profitable trading position turn in to a loss. When they are in a position of uncertainty, they will be quick to sell at the first sign of weakness, causing a pull back in midst of a good up trend.
Those who miss out on opportunities will often jump in at higher levels, motivated by their sense of loss in having missed the opportunity in the first place. This group will often move a stock higher well in to its uptrend, but they play a much riskier strategy because of the gains made before they enter the position.
These forces, and others, all play out in the market every day, and lead to a relatively predictable cycle that stocks go through.
First, there is the breakout cycle, where typically savvy traders, and some lucky traders, latch on to a hot story early and break the stock from a trading range and begin its abnormal trading activity.
Next, there is a quick pull back as owners of the stock, who are not aware of what is causing the breakout, sell in to the strength as they consider themselves lucky for getting out a higher price. What is critical in this stage is to see whether the stock penetrates support, or if the first group is able to hold back the selling force and maintain its technical strength.
The next stage is the critical one. If there is good justification for the breakout, then the bigger money momentum players will come in to the stock and give it a surge upward to new highs, with heavy volumes. Initial selling pressure abates and the stock can often surge dramatically higher.
Along the way there will be short pullbacks as groups of traders nervously take profits. These are shake-out phases that can be difficult to separate from the stock truly topping out.
Finally, there is the exhaustion phase, when emotional traders enter late but the big money clears out their positions. There is often very strong volume, but upward momentum slows. The peak is typically marked by a pullback, and rally that fails to make a new high and then a breakdown from a falling top. The party is over.
So, where do the Pros make money and the Rookies give it up? Pros may buy in to the breakout, but instead of getting out nervously on the post breakout pullback, they actually add to their positions. Unless support is violated, the stock has good potential to go higher.
As the stock moves upward, the Pro may anticipate where the stock will find some resistance and sell in to that price point, with the aim of getting back in at lower prices on the next pull back phase. Rookies buy the stock as it approaches resistance, and then get shaken out when the stock pulls back sharply on emotional selling.
Finally, Pros will liquidate most of their position through the major upward phase while the general public buys. Pros look to short the stock when the greenest of the Rookies is buying in to the exciting up trend. When the stock breaks down from a falling top, the Pro is short while the Rookie is hoping for a turnaround.
Human beings are programmed to fail in the stock market. From our childhood, we are taught to avoid pain (don't touch that, it is hot!) and seek out pleasure (if you are good, you can have some ice cream). Stock traders have to spend a lot of time reprogramming to buy weakness in strong stocks, and sell strength in weak stocks. That means seeking pain, and avoiding pleasure, a very hard thing to do.
I hope this helps.
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The summer is slow, and this year has been particularly so. The Fall does not usually bring strength, so what can investors do to get some return while waiting for the market to find some upward momentum? The answer is somewhat boring, but the Canadian Investment Trusts have many examples of good charts, and they also pay a yield for ownership.
This week, I used the Stockscores Sector Watch tool to identify some Trusts that have decent potential to move higher in the weeks and months ahead. Take a look in to some of these to see if they fit your investment goals and risk tolerances:Back To Top
1. T.VKR.UN
This Trust has formed a long term ascending triangle pattern, which is a sign of optimism. Moving through resistance now, it has good potential to move higher.
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2. T.FCE.UN
Completing a cup and handle pattern and now sneaking its way through resistance, this Trust has good potential to move back up toward $11 - $11.50.
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3. T.RRR.UN
Breaking from a rising bottom consolidation, this is a good example of a turnaround chart. It looks like the down trend may be over.
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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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