Ed Note: Tyler Bollhorn gave superb insights into how to trade in the Money Talks in the Money Talks Super Summit last weekend available by video HERE.:
Listening to Stockscores Users
Stockscores.com Perspectives for the week beginning Nov 9nd, 2009
Do you want to trade the stock market professionally? I must tell you, although it is not an easy thing to do, it is definitely something worth pursuing. The financial potential is what attracts most people to trading but for me it is the freedom that it offers. Trading is a perfect profession for someone with a young family that requires time or that person who likes to travel. Your boss, the market, never gets upset if you need to take a little time off.
However, we should go back to the second sentence from the paragraph above. Trading is not easy and I will never give anyone the impression that it is. I have a lot of people who want me to teach them to trade and I always try to be pretty straight with them so they don’t have unreasonable expectations. While it is possible to make a living trading after just a month of study, it is highly unlikely. For most, it takes time to learn how to trade and how to get control over their emotions.
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The greatest hurdle for aspiring traders is their own limiting beliefs. Anyone can learn what support and resistance are or how one chart pattern might be better than another. But, it is reprogramming their mind that takes the most time. From a young age, we are taught to think in ways that are destructive to trading.
We are taught to pursue percentage or dollar gain. We are taught that we need to be right more than we are wrong. We are taught that taking losses is bad and should be avoided. We are taught that we can only make money by buying good companies.
All of these things are not valid to an experienced trader. I only judge success by the amount of reward I get for the risk I had to take to get it. I know that you can be wrong more than you are right and still do very well in the market. I have learned, the hard way, that you have to take the loss when the market tells you that you are wrong. I have become cynical about what makes a company good; I now prefer to typify a good company as one whose stock goes up after I buy it.
To trade well, you need a strategy that gives you an edge. You need mathematical proof that your set of trading rules will consistently make money over a large number of trades. The first thing that every trader should do is test their rules to establish this proof.
Strategy testing is one of the things that I enjoy doing most. I actually find trading kind of boring (although I do like what it provides) and so I tend to spend probably too much time testing and developing strategies.
This past week, a coupe of our readers sent me emails discussing their success with one of the strategies that I teach in the StockSchool Pro course. This day trading strategy, called Superheroes, has rules that I have tested and found to have an edge. However, it is one thing for me to tell everyone that my strategy has an edge, it is another to have students that have taken my course find the same results. That is what I like about the two emails that I received this past week.
“I have learned to see the trades not in dollar and cents terms but in risk units.(ie 2 risk units won for 1 risk unit loss)
Here are some stats that I have compiled.
July 2009 62 trades 42 wins 20 loss 97 units wins 20 units loss net 77 units 0 days no trades
Aug 2009 52 trades 40 wins 18 loss 117 units wins 18 units loss net 99 units 1 days no trades
Sep 2009 48 trades 35 wins 16 loss 73 units wins 16 units loss net 57 units 2 days no trades
Oct 2009 36 trades 26 wins 10 loss 36 units wins 10 units loss net 26 units 5 days no trades
I shared these stats in a recent daily newsletter and it brought a response from another reader,
“Since we’re in the sharing mood, here are my stats in a similar format to your reader for the last 6 months for the superhero strategy specifically:
Trades Wins Losses Units Won Units Loss Net Units Days no trade
May-09 24 15 9 42.00 -8.23 33.77 9
Jun-09 14 12 2 18.93 -1.33 17.60 11
Jul-09 31 23 8 57.85 -9.14 48.71 7
Aug-09 50 35 15 85.35 -15.43 69.92 3
Sep-09 56 36 20 80.13 -21.39 58.74 3
Oct-09 39 25 14 52.47 -13.54 38.92 7
Both of these examples show a success rate of just fewer than 70% which is what I have also found. But what stands out is the number of profit units versus the number of loss units and how this strategy consistently provides a positive expected value. That is what you need to make money as a trader.
I receive a lot of stock “tips” from our users and even the companies themselves, each telling me about the great potential in the stock they are interested in. The stories always sound great but, since I never make a trade based on the story, I don’t usually do too much on them.
I do like to check the charts of these stocks; in about 3 seconds I can tell if there is something worth considering. This week, I thought I would review the thought process I go through when I receive a stock tip. Since I know many of you are also getting tips, hopefully this process will help you with your evaluation.
This past week, two of our users sent me stocks trading on the TSX Venture. This is the market I grew up trading (then it was the Vancouver and Alberta stock exchanges). I like these stock for their ability to make considerable percentage moves but I tend to not trade them much any more because of their lack of liquidity. It is harder to move in and out of big positions in stocks that trade less actively.
However, for many traders, these stocks are a good way to get started, provided you understand the risks that come with less actively traded stocks. You have to play them when they are in play and get out before the dust settles. They will often move very quickly, but can die off just as fast.
The first stock I was “informed” of what V.MMC. This company caught my interest because they make a product that I actually use; something called Poynt which is a search engine for mobile phones. With it, you can find movies and businesses in your area, it uses your GPS location to identify the relevant businesses near to you. I installed it on my Blackberry some time ago and I use it quite often.
The second stock is another good sounding story. V.APH is benefitting from the H1N1 pandemic because they make cleaners and disinfectants which kill viruses and bacteria. They are actually the “Official Hand Sanitizer for the 2010 Olympic Games” which I thought was kind of funny.
Those of you who know me will know that I don’t care about the story. I only give you this information because that is the kind of information people send to me. I only read the information that I got because I wanted to write this column for the newsletter. Usually, I just skim through to get the symbol so I can check the chart.
So, with that preamble, let’s consider those charts:
V.MMC is not trading with great liquidity but it has made a noticeable increase in trading volume over the past two months. That tells me that something is happening with the stock to get people’s attention. I don’t really care what that something is, but it is a good sign.
The chart shows rising bottoms indicating investors are optimistic in the stock and the buyers are in control. Over the past few weeks price has been trading sideways indicating the stock is stable and has a good base. The sellers have not found much motivation to act yet.
What I would like to see is for this stock to break out of this trading range with a jump in volume. That would be a good entry signal for those comfortable with these kinds of stocks. Right now, support is at $0.16.
Play weakness in the overall technology sector with a short on the XLK ETF which is breaking down from a rising wedge pattern. Resistance at $21.25
I sent an email back to the person who told me about V.APH advising that the stock looked good but it appeared to be a bit too late to enter. The stock is strong and I think it has priced a good deal of the story in already. The main problem right now is that it has run away from its upward trend line. I would like to see it pull back to that upward trend line, perhaps around the $0.55 price mark, before I would consider it for entry.
The good entry point was October 14th when it broke through resistance and out of an ascending triangle pattern with volume support. I missed that but I think there is a good chance we will get a second opportunity on a pull back.
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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.
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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.