The Stockscores Approach
Stockscores.com Perspectives for the week ending January 7, 2005
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Stockscores Presentations 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.
Learn how to pick long term investments or short term trades in stocks using the Stockscores Approach.
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 in February
Go here for location details and to register for one of these free seminars.
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In this week's issue:
There are a variety of Stockscores users; some use the Stockscores tools to assess longer term trading opportunities while others are active day traders who use our tools to find stocks that they can play for a very short term hold period. While the Stockscores web site was originally designed for longer term position traders, it is also powerful for day and swing traders. Here is how different types of traders can use the tools of Stockscores.com.
Position Traders
Let me begin with position traders, who typically hold stocks for 3 days to 3 months. Using the Stockscores Approach, these traders are looking for opportunities that don't require a tremendous amount of time to monitor. Typically, position traders do their research in the evening after the market closes and enter positions in the days after they discover an opportunity.
The first step is to assess the overall market to determine the best strategy for the current market conditions. I look at the major index Exchange Traded Funds like the Dow Diamonds (DIA), the Nasdaq 100 Trust (QQQQ), the S&P 500 Spiders (SPY) and the TSX 60 (T.XIU) to gauge where the overall market is going. If these have Sentiment Stockscores above 60 or Sentiment Stockscore lines that are rising, then I will lean toward the buying strategies outlined in the Strategies area of Stockscores.com (found under the Getting Started menu). If the Sentiment Stockscore lines are falling on the major indexes, then I will favor the short selling strategies discussed in the Strategies area.
I will then use the Market Scan tool to identify the stocks that meet the requirements of the Strategy that I am focusing on. The Market Scan will give me a list of stocks that meet the basic criteria of the Strategy, but I must still check the charts of those stocks to see if the patterns are appropriate. To do this, I go through the charts using one of the Chart Viewers, either the Slide Show or Gallery. As I see stocks that I think have potential, I will add those charts to a Watchlist which can be done from the Chart Viewers. I then go back to the charts added to the Watch List and view then again in more detail, to see if the charts are good enough for my consideration.
Once I find a chart that looks good, I will use the Risk Calculator to assess whether there is enough potential reward for the risk of the stock, and determine the appropriate position size. I can then execute the trade.
I like to use the Stock Alerts tool to monitor stocks that I own, and set an alert for a price movement near my predetermined stop loss point. If the stock is nearing my stop loss point, I will get an email to my computer or cell phone advising me that I should check the stock.
I add all stocks that I have positions in to a portfolio using the Portfolio Creator tool, and monitor those stocks on a daily basis to assess whether I should be exiting the position or adjusting my exit prices.
Use of these tools requires a Stockscores Advanced Membership.
Short Term Traders
Some of us prefer to hold stocks for hours or minutes instead of days. Day and Swing Traders can benefit from the tools of Stockscores.com too, using the Market Scan tool to identify stocks that have the best probability for success and highest profitability potential.
In my opinion, the best way to make money as a short term trader is to focus on stocks that are trading with statistically significant abnormal price and volume movement. The Stockscores Market Scan has sophisticated filters that find these stocks in only seconds, so the trader can monitor their intraday charts for ideal pattern set ups.
When I am day trading, I run one of the Market Scans that identify these kind of stocks (my favorite is one that I call SuperHeroes) and use the results of the scan to create a Watchlist of stocks that I will monitor using a real time charting package like QCharts or Real Tick. I apply the Day Trading strategies taught in the StockSchool Pro home study course, which teaches everything you need to know to apply the Stockschool Approach to day, swing or position trading.
As I see opportunities from the Watchlist that I created using Stockscores, I execute trades, practicing the risk management and discipline taught in the StockSchool Pro course. Typically, there are 3 - 10 trades a day with an average hold period of about an hour.
Swing trading the Stockscores Approach is similar to day trading, but the hold period extends from about an hour to 1 to 5 days. I can apply Market Scan Strategies like Overnight Holds, Volatility Swings or Pullback Plays using the preset scans of the Market Scan tool.
Summary
Trading the stock market is simple, but not easy. To be successful, you need Tools, Rules and Discipline. The Stockscores web site is the Tool, the StockSchool Pro course teaches the Rules and the importance of Discipline. The learning process for StockSchool Pro students is complimented by our Live Trading Room and the interaction that I have in answering the questions from our Stockscores traders. If you want to trade successfully, I encourage you to consider the StockSchool Pro home study course.
In the next two weeks, I will be unveiling the new StockSchool Pro course, which includes an in depth course book and 8 CD ROMs that provide the kind of teaching that I used to only be able to do in a class room. Anyone with the willingness to learn can become a trader, whether your aim is to be a long term position trader or a short term day trader.
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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. LSI
This week, I ran the Stockscores Simple Market Scan on the NYSE, and the search found 22 candidates. After inspecting the charts of each, I thought that LSI had good potential. It is breaking from a rising bottom consolidation after a recent break of a down trend. Volume has been increasing over the past week and it appears that investors are getting optimistic about the stock. I think the longer term outlook for this stock is pretty good, with the stock perhaps stalling at the next level of resistance around $7.50.
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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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