Plan, Process, Practice
Stockscores.com Perspectives for the week ending February 26, 2010
In this week’s issue:
- Weekly Commentary
- Strategy of the Week
- Stocks That Meet The Featured Strategy
Being a successful trader requires a plan. Whether you want to sit in front of the screen all day and make short term day trades or spend only 15 minutes a day managing your position trades, that plan needs to define the rules for entry, exit and risk management. There needs to be more than just rules, a good plan needs to systematize the process of identifying and executing opportunities.
Many traders realize the need for a plan but they don’t go far enough in creating one. They might write down their rules but not spend enough time defining the exact processes for executing those rules. Or, they may fall short in testing their rules to the point that they can have confidence in them.
I go so far as to practice each component of the process and look for ways to improve it. Particularly with day trading, it is easy to miss out on opportunities if the process is flawed. It is one thing to know what to look for, quite another to find them in time to capitalize on the opportunity.
For example, I have two options for creating my day trading watch lists. One is to use TradeStation software. This allows me to do a real time scan to pull out the most liquid and abnormal stocks. However, the process to create the Watch List takes me about 11 minutes.
My alternative is to use Stockscores. With the Market Scan tool I can create my Watch List (including going through the charts to eliminate those that I don’t want to monitor) in about five and a half minutes.
The problem is that Stockscores can only help me build the Watch List about an hour after the open. So, for the first few times that I create the Watch List I use the real time method of TradeStation and then, as the trading day progresses, I use Stockscores for its time saving simplicity.
Missing out on good trading opportunities because of a lack of timeliness is another problem faced by most traders. We have all had the experience of seeing a great trade set up after it had run its course, giving us a case of the woulda coulda shouldas.
But again, this is a problem of process, not rules. If we can develop a better process to find the trade set ups then we can allow the rules to shine a light on the good trading opportunities. Here again, tools and preparation help.
You can combine the Stockscores Market Scan and the new Stockscores Trading Desk to create lists of stocks to monitor for entry signals. Even the longer term, more conservative trader can really improve their performance by creating a group of Exchange Traded Funds to check each day before the market closes to see if there is an entry signal. With the preparation work done once a week, this process might only take four or five minutes a day, something that many busy people can find time for.
When day trading, I rely on some of my tools to put the charts in front of me so I don’t have to waste time going through them one by one. Multiple monitors help in this regard because I can easily watch 30 stocks in real time with minimal effort.
Tools have a cost, but so too does missing out on a trading opportunity. I pay close to $1000 a month for tools but they can easily generate that for me with one trade. You have to spend money to make money.
Today, my day trading strategies revealed the following 19 trades, the number beside the trade was the reward for risk multiple that the trade paid. A two means it paid two times the risk. A minus one means it lost one risk element. So, if my risk tolerance is $500, a two means I made $1000 on that trade. The higher you set your risk tolerance, the more capital you need to trade the opportunities.
DMMD: -1
WTW: 2.2
CCC: 3
ATHN: 3
ATHN: -1
FCN: 3
FCN: 1
FCN: 1
ARM: 1
INT: -1
INT: -1
INT: 2.5
GVA: -1
STV: 4
DECK: 4.3
CROX: -1
MHK: 0
MHK: 0
The total of all of these is 19 which means a $100 risk tolerance would lead to $1900 in profits.
However, this is only if you executed every trade. Since many trades come up at the same time, it is nearly impossible to do this without a computer and good tools to help. You need a good tool to create the Watch List and a good tool to monitor the stocks for the entry signal. And most of all, you need very good mechanical processes to execute without emotion or human error.
Are the tools and process enough? No, like anything there is still one other factor that many people are unwilling to provide. Hard work.
It is hard work to spend the time to practice enough so that the process becomes second nature. A professional hockey player does not have the time to think when trying to put the puck in the net. The moves must be instinctual. The same can be said for the trader, particularly the day trader. The processes need to be practiced so much that they become instinct.
I can look at a chart and tell whether it is worth trading in only seconds because I have spent so much time practicing. But it does not have to take 20 years to get to this point if you have a good plan, process and a good approach to practice. Work hard at achieving these things and you can be a successful trader.
The overall market is a bit lost right now, not sure if it should go up or down and so, over the span of a few days, it tends to go no where. That is a hard market for many traders to trade because there is no strong trend to ride.
It makes it necessary to trade individual stocks that are moving on their own story. The best way to find those is to search for stocks that are trading abnormally. Using the Stockscores.com Market Scan, you can do a search for stocks that are trading Abnormal Volume and at least 500 trades a day. I did that and uncovered an abnormal stock that has a predictive chart pattern. See below.
1. MCGC
MCGC breaks out from an ascending triangle pattern with abnormal volume supporting the break through resistance. The stock came to life late in Friday’s trading session and, while it faded in to the close, it looks like it has good potential in the weeks to come. Support at $4.66.
Click HERE if you want to learn from some of the timeless advice from some of worlds best traders including the very successful Tyler Bollhorn.
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.
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.
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.