| Home | My photos | Forex | My trading | Contacts |
|
|
You Can't Become Rich In Your Pocket Until You Become Rich In Your Mind | ||||
|
I look to buy the shares, but prefer to buy the call options (if there are options available)Look for Price Increases or Decreases of More Than 30 Percent since Yesterday This is the most important indicator I use for momentum investments. The 30 percent rule is the minimum. I prefer a much higher number to show even stronger momentum. Typically, the higher the percentage, the stronger the momentum. How does this work? You can either look at the price percentage gainers and losers lists from the newspapers or check out our web site to access this information from your computer terminal. If you are receiving real-time or delayed quotes, then you can get this information from your data feeds during the day. When I look at the lists, I look for the stocks that have gone up the most in price over the previous days closing pricethe basis for the percentage gain or loss. However, it is important to note that stocks with the highest percentages do not necessarily have the most interest or momentum. Sometimes a stock that was trading for only $1 moves up to $1.75. Although thats a 75 percent increase, it doesnt always mean high profits. In order to get a better understanding of a stocks profitability, I also look at price range and trading volume. I typically trade only stocks starting at $5; however, sometimes I do trade lower-priced stocks if they show significant trading volume. Generally, I trade stocks that have increased in volume significantly. If a stock trades less than 300,000 shares a day, I avoid it. Maybe it will make a move, but there is not enough interest from other investors for me to believe the trade will be profitable. I like to see more than one million shares trading. This shows commitment on the part of the investors. Once again, the more volume the better. When buying shares, I want them to be on the price percentage gainers list. I consult the price percentage losers list to find shares that have made major moves down (30 percent or more) and then look for a rebound. This is when I find buying opportunities. This may sound strange, as most investors may think this shows more weakness coming, but remember that I like the contrarian approach. Also, understand that when a stock moves so far down so fast there is usually negative news regarding the company. Perhaps the quarterly financial results are disappointing Wall Street, or the company has presented information that future earnings will be disappointing. Most importantly, this usually creates a panic and what is called a blow-off bottom. This means that the fast move down has made every potential seller panic. After the sellers have all sold, buyers tend to produce a rebound. How often does this occur? Sometimes on a daily basis I find at least one stock that has dropped at least 30 percent (50 percent or more is even better). These declines appear to come in spurts, especially around the time in each fiscal quarter when companies are reporting earnings. When the market opens, I watch these shares closely and wait for them to start gaining momentum to the upside before buying. I wait for a movement of at least a 20 percent price move off the lows, with heavy volume of at least 300,000 shares. I like to see large blocks (5,000 shares or more) increasing, as this shows the institutions are buying. When this scenario occurs, I look to buy the shares, but prefer to buy the call options (if there are options available). Remember, I get more leverage with options and also have the benefit of limited risk. All I can lose is the amount I paid for the options. Lets take an example of a trade using SyQuest Technology, Inc. SyQuests stock price was increasing on heavier-than-average volume and had an average daily volume of around 200,000 shares. One day, the stock price moved from $5 to $6 (a 20 percent increase) on volume of more than 1 million shares trading. This was an obvious clue that something was happening that was creating a great deal of interest. I contacted my broker to see if there was any news to account for this movement. There was none. The shares price had been much higher before dipping to trade just around $5 for the past few months. I considered buying it. However, 2,000 shares would cost me $12,000 (2,000 6 = $12,000). Instead, I de cided to buy the 7.50 (strike price) call options at .875 each, making sure there was plenty of time left to expiration. I prefer to buy options with at least three months remaining, especially on momentum investments. Thus, I paid $87.50 for each option representing control of 100 shares of stock. In comparison, buying 100 shares of the stock would have cost $6,000. Although the options did not represent the shares on a one-to-one basis, any move up in the price of the shares would double the value of the options quickly. Approximately four days later, the shares had doubled in value (a 100 percent move). This enabled me to sell each option for $537.50a profit of $450 per option. My choice to buy call options instead of purchasing the shares straight out led to a 500 percent return in just four days! This simple technique can provide you with profits greater than you ever imagined could be made in such a short period of time. Look for Shares Reaching New Highs or Coming Off New Lows When used in conjunction with lists of price percentage gainers and losers, this is one of the most powerful indicators. When a stock is on one of the gainers lists and its making new highs as calculated over the previous 52 weeks, then it may be a buy (especially if its making new historical highs). Also, when the stock has made new lows and is coming off new lows, the blow-off bottom may have occurred. Buy a Small Number of Shares or Contracts Until you have the experience to make money consistently in the markets, start off as a small investor. Regardless of whether you have a thousand dollars or a million, until you really understand what youre doing, youll be much better off with small investments. How small is small? This question is virtually impossible to answer. Just be cautious when you start out, until such time as you are a consistent winner. Then build up slowly. Build Your Confidence It is important to earn your confidence through winning investments. However, be vigilant that you do not build a false sense of confidence. Although I have been investing for many years, I still spend considerable time figuring out ways to improve my trading. If you develop a sense of temperate confidence, you will most likely be a survivor. That means youll actually be around to enjoy the benefits of this business. Often, when a trader starts to make a little money in the markets, a false sense of confidence drives them to make much bigger trades. This is a big mistake. As they say on Wall Street, Pigs get fat, hogs get slaughtered. When You Make a Good Return, Sell What is a good return? Every trader or investor will probably tell you something different. I like to make 100 percent on my money when trading stock options, and a minimum of 20 percent when making commodity trades. With stocks you usually have to settle for a lower return (10+ percent). These are the numbers I use based on my experience with winning trades; however, these are benchmarks, not hard-and-fast rules. My exit strategies are usually based on momentum shifts, which means that some of my trades have returns much higher than 100 percent. I also have losing trades (nobodys perfect). However, a disciplined trader will get out of losing trades quickly and learn how to stay with the winners. Its very much like being a surfer waiting for the big wave. A wave might approach that has the characteristics of a winner but then starts to look like a loser. Instead of wasting time riding the loser to shore, the experienced surfer will get off that wave and look for another opportunity. You too are looking for the big winners. So dont forget to get out of the losers quickly so that you can use your capital in the most efficient manner possible. CONCLUSION Profitable trading opportunities come from an infinite number of sources. The trick is to foster the growth of your own personal trading antennae through cultivating a variety of sources. Remember, you will never have as much time as you would like to study the markets. You have to use your time efficiently to find the best possibilities for profitable trades. In many ways, the maxim in on greed, out on fear captures the essence of traditional trading methodologies by cutting through the hype and complexity that drives market momentum. This emotional motivation sets up quite a paradox. On the one hand, trading appears to be a very dry business. However, the emotions of hope and fear impel traders to place trades and exit them creating erratic market swings. These swings can be devastating to traders who simply buy stocks hoping prices will rise. In fact, directional traders are always at risk of losing money when markets reverse course in the middle of a trend. Thats because directional trends depend on trader optimismas unlikely a source for stability as you can find, especially these days. As sellers scramble to exit a market, fear drives prices down until a new low inspires buyers to get involved again. This cycle feeds on itself winners and losers trading back and forth at the whim of human emotion. Meanwhile, thousands of analysts spend countless hours poring over fundamental, technical, and sentiment data looking for clues to price movement. Analyzing markets can be overwhelming, especially to traders who are just getting their feet wet for the first time. To trade successfully, it is essential to develop comprehensive market insight and the moral conviction to stand strong against the mass psychology that drives market behavior. Market insight comes from studying market movement and a certain familiarity with trading strategies that take advantage of specific conditions. Market movement is an extremely complex subject. There seems to be an endless stream of directional analysis techniques. Each may offer a piece of the greater puzzlebut no technique holds all the answers. Trading might as well be a foreign country to the uninitiated. It has its own language and its own customs. Its up to you to find your favorite haunts by exploring the territory and finding out what suits you best. If technical analysis feels comfortable and fits in with the rest of your lifestyle, then read all you can about it. Trading is a game of odds, and though no one can be 100 percent correct in their decisions, by using the data available and then placing hedged positions, traders can see nice profits without the risk of losing everything in their portfolios. Whatever you choose, make sure you dedicate yourself to really understanding it. Familiarity may breed contempt, but when it comes to trading, familiarity breeds prosperity. |
|
|||||||||||||||
Previous Issues
|
| ©2007 Olesia | Home • My photos • Forex • News • My trading • Contacts |