Trade With Control in 2010 – Resolutions for Every Trader
Stockscores.com Perspectives for the week beginning Dec 27th, 2009
Best wishes for 2010!
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.
The markets are very slow at this time of year and there are few good trading opportunities. Expect activity to pick up after the first week of January.
This year was one of the most unusual I have ever seen. In March, investor psychology could not have been any more negative; there was complete fear among most investors which, of course, means there is great opportunity. The sky did not fall as so many thought it would and the market enjoyed one of the best rallies ever after making its low early in March.
The question we all now face is, will the buyers continue to push stocks higher?
2009 is finishing with some pretty optimistic chart patterns on the major market indexes. This week, I go through each of these charts and provide a short analysis to help you determine what your strategy should be as 2010 begins.
The state of the overall market should determine your strategy. If the market appears likely to move higher, position trading strategies like the Stockscores Simple or the swing trading strategy Pull Back Plays are good choices. If the market is going lower, short selling strategies like the Reversal of Fortune, Pull Up Plays or Long Term Breakdowns will enjoy the best success.
So, as 2009 comes to a close, here is my current analysis on the four major market indexes that I like to follow. This analysis can change quickly, to stay updated on where the markets are likely headed, check out the weekly Market Minutes videos from the link on the Stockscores.com home page.
The S&P 500 is represented by the Exchange Traded Fund, SPY. This ETF is just breaking through resistance after spending a couple of months trending sideways. The buyers are in control and we should continue to favor buying strategies until the trend reverses.
The Nasdaq 100 is a showcase for mostly technology companies and is represented by the ETF, QQQQ. This market has been a leader in the past couple of weeks and was the first to make the break through resistance. I expect these stocks will continue to lead the market higher in the very short term before that money rotates out in to other sectors. Stay on the buy side of the market for these stocks.
The Dow represents the largest companies in the world and is a good proxy for the global economy. The DIA is lagging the S&P and Nasdaq as it has not yet broken through resistance but its chart is an optimistic one with the buyers in control.
The TSX 60 is the benchmark for the Canadian markets and is represented by the ETF T.XIU. This index is based heavily on commodity stocks, particularly energy and mining. Since the global recovery will require commodities, this is a good index to track. The chart for the T.XIU is in an optimistic sideways pattern but the chart is a bit deceptive. Unlike the US Dollar, the Canadian has been strong over the past few months which means this market has been an outperformer for foreign investors who are seeing gains in their stocks but also in the underlying currency of those stocks. Remain on the buy side of this market until the chart pattern is reversed.
Tyler Bollhorn started trading the stock market with $3,000 in capital, some borrowed from his credit card, when he was just 19 years old. As he worked through the Business program at the University of Calgary, he constantly followed the market and traded stocks. Upon graduation, he could not shake his addiction to the market, and so he continued to trade and study the market by day, while working as a DJ at night. From his 600 square foot basement suite that he shared with his brother, Mr. Bollhorn pursued his dream of making his living buying and selling stocks.
Slowly, he began to learn how the market works, and more importantly, how to consistently make money from it. He realized that the stock market is not fair, and that a small group of people make most of the money while the general public suffers. Eventually, he found some of the key ingredients to success, and turned $30,000 in to half a million dollars in only 3 months. His career as a stock trader had finally flourished.
Much of Mr Bollhorn’s work was pioneering, so he had to create his own tools to identify opportunities. With a vision of making the research process simpler and more effective, he created the Stockscores Approach to trading, and partnered with Stockgroup in the creation of the Stockscores.com web site. He found that he enjoyed teaching others how the market works almost as much as trading it, and he has since taught hundreds of traders how to apply the Stockscores Approach to the market.
Get the Stockscore on any of over 20,000 North American stocks.
Background on the theories used by Stockscores.
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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.
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.