10 Resolutions for the Stock Trader
Stockscores.com Perspectives for the week ending January 1, 2005
|
| Upcoming Events |
Stockscores Seminars Across Canada
Learn more about how the Stockscores Approach can make you a better investor and trader. During these free seminars, Stockscores founder Tyler Bollhorn will show 3 simple rules for evaluating any stock and much more. See how you can analyze any stock in less than 10 seconds, and how you can identify opportunities in only minutes.
Ottawa - Jan 18
Montreal - Jan 19 and 20
Toronto - January 24, 25 and 26
Winnipeg - January 27
Victoria - February 1
Vancouver - February 2 and 3
Calgary and Edmonton dates to be announced soon.
Go here for location details and to register for one of these free seminars.
|
|
In this week's issue:
10 New Year's Resolutions for Every Stock Trader
1. I Will Remember Risk - every time we make a trade, we must let the risk of the trade determine how many shares we take in the position. If we take more risk than we are comfortable with, we are more likely to make emotional mistakes that will cost us money.
2. I Will Remember Reward - a trade must have enough profit potential to justify the risk of the trade. As a general rule, a trade should have twice as much reward potential for the risk you take.
3. I Must Limit Losses - a big loss in your portfolio can outweigh the gains made on 10 other trades. Limit the size of your losses and stick to the limits. If a trade does not work out, take a small loss and move on.
4. I Must Not Limit Profits - while it feels good to lock in a profit, we should lock in our gains when the market tells us the stock is more likely to go lower than higher. Let profits run until then.
5. I Need to Keep it Simple - in the search for trading success, many traders get very complex in their analysis. Good traders keep it simple, and focus on doing the simple things right.
6. I Will Remember that Public Information is Useless Information - if information is known by the general public, then it is priced in to the stock. The stock market moves on what will happen in the future, not on what has already happened.
7. I Will Focus on Abnormal Behavior - the stock market is efficient most of the time. That means that you can not expect to consistently beat the stock market unless you focus on opportunities where the efficiency of the market is breaking down. That tends to happen when stocks are behaving abnormally.
8. I Will Trade With Confidence - so much of trading success is mental. To make money, you have to believe in what you are doing and execute your trading plan. Start slowly and build up your confidence before you take too much risk.
9. I Will Learn Before I Trade - most stock traders lose money because most stock traders don't take the time to learn how to trade. Tools are only useful if you know how to use them.
10. I Will Not Try to be an Overnight Success - if you aspire to make money from the market, realize that the process to learn how to trade will take time. Getting rich quick from the stock market is no more likely than attaining wealth by playing blackjack. Good traders don't gamble.Back To Top
A common theme among Head and Shoulder Bottom, Ascending Triangles, Pennants and Rectangle Consolidation patterns is a break through resistance from low price volatility, usually with volume supporting the breakout. Rising price bottom formations in to the breakout point are common, but what market dynamic do these patterns really represent?
Rising bottoms are a sign of growing optimism among investors. As time passes, they demonstrate a weakening of selling force and increase power among buyers. As a stock moves up toward a resistance price point, the market is faced with the upper limit on what investors believe the company to be worth. We often see that stocks will go in to narrow trading ranges under resistance as investors come to a consensus on the value of the company. When stocks break out from this condition, they may be signaling significant new fundamental information at work in the market since resistance has been broken from strong consensus out of a period of optimism.
The Sentiment Stockscore is useful for finding optimism in the market, and the Signal Stockscore is heavily weighted on the abnormal market activity that comes with breakouts. By looking for stocks that have a Sentiment Stockscore of 60 or higher, and a Signal Stockscore of 80 or higher, we can consider charts that may have a good chart pattern set up. The Stockscores Simple Market Scan adds in some other technical filters to shorten the list of potential candidates further.
This strategy is not solely about finding stocks with good Stockscores. The most important step is visually inspecting the charts to ensure that the chart patterns are what we are looking for. A good chart pattern will have the following characteristics:
- A break through resistance
- Abnormal activity, in terms of price and volume activity
The break through resistance should be from a period of low price volatility. Low price volatility is characterized by the price range of trading on each day (how tall the trading range is on the chart) and by the range of trading over a number of days (are the trading days side by side on the chart, or is there a price trend?)
A show of optimism leading in to the break through resistance from low price volatility.
It is necessary to have all of these criteria, many traders forget to check whether the stock was trading with low price volatility before the breakout, or to make sure that the stock is truly breaking through resistance and will not encounter more selling pressure soon.
Back To Top
1. SYNM
SYNM is breaking through resistance from a rising bottom chart pattern, which demonstrates optimism among investors. The recent increase in volume trading on the stock shows that a crowd is gathering, and may be indciative of a significant and position change in the market's perception of the company's fundamentals. The stock has support at $7.25 and I think the stock is worth considering unless the stock penetrates that support level.
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.
Back To Top
|
If you wish to unsubscribe from the Stockscores Perspectives Weekend Edition or change the format of email you are receiving please login to your Stockscores account. Copyright 2004 Market Perspectives Inc.
|
|
