Still Ugly!
Back on December 6th, I gave a chart review of MOVI, which was a down trending stock. The point of the article was to avoid down trending stocks.
Although MOVI appeared “cheap” at that time, lower highs and lower lows were in place and there was no reason to believe that was about to change. Here’s a look at the chart I showed back in December:
MOVI put in some horizontal price action following my post, but that was merely a pause in the poor action. Trends followed by horizontal price movement are often followed by more trending in the original direction, which is what MOVI is still doing.
This stock is once again moving lower (down 40% since my review of it – ouchie!) and getting “cheaper” for those who believe in the stock’s fundamentals. Imagine their pain!
The moral of the story is still the same: stick with the technicals and avoid buying stocks in downtrends. Make sure that a stock you’re considering buying has some potential to rise in price and make a higher low and a higher high. Don’t let today’s prices compared to historical prices be your basis for buying a stock, because cheap stocks only seem to get cheaper. You’ll save yourself a lot of money and be able to focus on good opportunities instead of babysitting trades resulting from poor decisions.
What A Breakout Looks Like
Last night in my stock newsletter, I highlighted ICE for a swing trading candidate on the long side if it could make new highs at $48.50. Here’s the chart I showed in last night’s newsletter:
I particularly liked the recent volatility following this stock’s uptrend, along with the fact that this stock was testing the recent highs. Throw into the mix that ICE has been making higher lows in the past couple of weeks, and the ingredients of a good setup were complete. A break above the horizontal line was the entry point I showed to my subscribers, and today ICE raced higher all day long, adding more than 10% to show us a gain of more than $4.00 per share!
Here’s a look at the ICE chart after today, with the breakout very easily seen:
Don’t be afraid of trading the new issues like ICE. Just because a stock has less trading history than many others out there doesn’t mean that you can’t catch a great move out of quality chart patterns!
GOOG – Big Move Potential
I’ve day traded GOOG a lot in the past week. It’s got great volume and moves a lot every day. The beauty of it is that I can be wrong several times in it, taking small losses each time, and then catch one move and make back much more than I may have lost, even trading the same share size.
What I’m wondering, though, is after this huge run, can GOOGmake more giant intraday moves like the high-flyers of ’99 and 2000? Having traded actively back in 1999 and 2000, I remember plenty of the triple-digit stocks which made $25 moves or more on a regular basis. Stocks like NSOL, SDLI,BRCD, QCOM and many others all made tremendous moves. Some more volatile days in GOOG like Monday’s reversal would leave me feeling a little nostalgic while the market chops around in this high trading range.
Is a 10% move in GOOG intraday out of the question? GOOG’s biggest gain of the year came in October following earnings, but it was all gap. GOOG has only posted 5 days this year with a 5% gain or more. Perhaps it’s just a different animal than the high flyers 5 & 6 years ago, but I’m still on the lookout for more monster moves someday soon from the top dog of the NAZ.
The Difference Between Positive Thinking and Denial
The market requires our very best every day. We have to show up with our game face on, ready to go from the opening bell. Preparation is a necessity and part of trading confidence, but that all happens long before stocks start moving. Once that bell rings, it’s all about execution and having the proper mentality.
Positive thinking has been a hot topic for a long time now. What I do know is that thinking positively is certainly needed for good trading results. Pulling the trigger to initiate a trade is based on confidence, and learning to be a profitable trader begins with preparation and confidence. But on the flip side, stubbornly fighting a losing battle is denial. Where do you draw the line?
When you do your homework and locate good trading setups that fit the current market environment, it’s easier to be confident. You might find trades on your own by screening for chart patterns, or maybe you get your trading list from a stock newsletter like our Bandit Broadcast. Either way, your preparation is part a part of your trading plan which should give you confidence. Developing a stock trading strategy entails knowing where to get into a trade and where to get out, and is also part of a complete trading plan. Having a trading plan for each of your ideas gives you confidence to hit that stock once your trading criteria have been met.
Thinking positively includes not only hitting trades once they trigger, but also being willing to upwardly revise your trading target in a stock with excessive momentum. A profit objective that is met faster than expected may be a signal that you found a big winning stock, allowing you to stay in on the profitable side of the trade for longer than you planned.
Denial is the other, dark side of the coin. Denial is when you blow stops and insist that you’re right on the trade, in spite of your P&L yelling that you are in fact wrong. You’re wrong when your stop loss is triggered, so exit the trade. Your P&L may be a scoreboard as to how well you’re doing, but it also can be your magic 8-ball to tell you whether or not you’re correct on a trade. Accept that you’ll be wrong a good deal of the time, and learn to manage losses appropriately rather than deny that you’re wrong.
Show up each day with your very best. Have a game plan. Know your exits. Think positively, and accept the results.
Should You Trade That Stock?
Traders have personalities of all sorts. Some are hyper-active and impatient, darting in and out of trades at a moment’s notice. Others are patient and willing to let a bigger move develop. Some take small risks, while others go for broke. Some watch the tape, while others make decisions based on chart patterns or indicators. You name the personality, it can be found on a trading floor.
Stocks are the same way!
Grandma’s slow but she’s old. Some stocks are both old and slow. Others make real-time quotes seem slow with the speed at which bids and offers change. Some stocks trend nicely, while others change directions every other day. Deciding which trades you should take is largely a matter of matching your personality with that of the stock in question.
The next time you’re stalking a trade, take a look at the history of the stock you’re watching. Does it frequently have big overnight gaps which might be costly? Does it move so much that it may stop you out too quickly? Or does it move so slowly that it’s likely to bore you out of it? Consider your personality and determine whether your stock matches it. Patient traders willing to wait for profits may be better served to trade the slow but steady stocks. Scalpers will likely do better in the high-volume momentum stocks which are in play for the day, providing them a number of chances to make incremental profits over the course of the day.
Whatever your personality, be sure to find stocks that are a good fit to trade. Seek out stocks with the right personality for your trading style. Whether you’re day trading or swing trading, you’ll be miles ahead of most traders who never take this into consideration.
The reason I like the idea of following a game plan, especially early on, is that only by being consistent can you truly measure your results accurately. Suppress those urges to fade a rally or buy a selloff, and stick to your rules. Only when you are taking the same kinds of trades consistently can you truly know over time if they are working or what needs to be adjusted vs. thrown out the window entirely. One day does not a trend make! Therefore, one day does not make or break a trading approach. In the beginning, it’s important to go slow and learn which approaches can prove valuable and which approaches will prove useless for you. In short, the beginning trader isn’t seen nothing’ yet, and those gut feelings he thinks he has are nothing but indigestion.
As time goes by, your trading style will evolve. Gut feel gradually becomes a part of your approach. You learn when to follow your rules and when to break them. It’s a matter of patience and experience, and learning to let your intuition play a role. No longer does that rally ahead of the economic release mean you should get long. Something just seems to tell you to watch for a sell-the-news reaction. That’s gut feel. It doesn’t mean that once you have it, it’s always right. Quite the contrary. Learning to trust your instincts means letting them play a legitimate role in your decision-making process, while not letting them take over and dominate.
So, take inventory of where you are. Have you done well during all kinds of markets? Have you been around long enough to know when to break your rules? If not, hang in there and follow your trading checklist for now. Start with making it a science, and you’ll develop the feel that makes it an art. You’ll get there eventually, but trying to take shortcuts will be costly. Just remember, capital preservation is the key from day one, so starting with an approach that is quantifiable is a good idea.