Kendall, Absolutely excellent post. I too have spoken with traders who never looked at charts, fundamentals or even knew about any of the products the company was involved in. All they knew was that 'biotechs were hot'.. so if they were up one day they got in and stayed in and I mean after 5 or 6 weeks of the sector skyrocket 300% and even more. Someone mentions a 'hot prospect' and posters who all they knew about the company was about 16 seconds of being on some sort of 'most up' list. Do you want advice from someone who just sees a headline among hundreds of other headlines and decides 'this is the one folks,' the stock that will hit 200. Others don't want to miss the express train so they grab on and hold on for dear life.
I've had traders use their IRA accounts to get into the biotechs after ABSC and the likes were already down scores and scores of points thinking it and others had bottomed. Why not wait for more indication, they don't follow strict and mechanical rules because they can't be bothered with them. It gets in the way of making a 'killing'...
Education is the only thing that will help traders. No limitations, restrictions, warnings, intimations of wrong doing. I would almost not let a trader even get a discount brokerage account without passing some sort of 'test' to see if he/she is knowledgable in the basic tenets of trading strategy. The other extreme is the 'monied' traders that invest in every software and program 'additive' known to man that will enhance the probability of finding a trade. So they find a trade, they find 33 trades and don't have an idea of which to chose.
Another problem is that traders never admit they lose or have made a wrong judgment. They just disappear after the trade sours only to appear a month later when the stock has come back saying 'you see I called this stock one month ago and it turned out great'. Of course the fact that the stock was down 30% in the interim has no bearing on the success of the trade. The result is that all ears are pealed on the next 'success' and so every possible trade is pounced on, held to long and daytrades that should have been closed at a 5% loss are turned into swing trades at a 20% loss and tragically, a position trade at 50% loss.
There is no room for ego or overconfidence in this business. I can count on one hand any trader who admits he lost money. I even exit trades that are ultimately good if I see it looks sour now, don't take chances, I don't care about commission because a $500 commission is a lot more bearable than a $5,000 or $10,000 loss.
You must do some research or at least know the historical price patterns of your stocks and if you follow 2,000, then how is that possible? Follow the most 75 or 100 but know them intimately. Put stocks that are correcting to the front of the list while stocks that have spiked precariously look to short.. Most times I follow on 25 stocks and can only make 5 or 6 trades because I have them chosen in advance if they reach certain predetermined levels. I will never get into something because it has crashed and 'should rebound'.. I have not done well lately with QCOM but I exited before losing anything even though others made money on QCOM.. I don't care. I have my little coups and I look at the cup as half full. So I missed the rise of PDLI and CRA.. I don't like them becasue they are too popular too hard to place in compact trading ranges and you need level II for most of the heavily traded stocks and can be led around the nose all day. UTHR was up nicely today but was it worth holding through a 40 point loss to gain a measly 6 points or so.. no. Oh I might try to get in again if I see an uptrend is established but one day does not an uptrend make, it makes only a daytrade.
Learn 5 or 6 trading strategies well and stick with them.. You don't need more than that. If you work on scans of stocks of high relative strength and/or fundmental strength you have one half the battle. Then your list will be full of promising stocks.. But using the entire S&P 500 or some list that 'explores' 6,000 stocks daily for 'breakouts'.. what are these breakouts? breakouts from charts that look like the Rocky mountains or breakout from charts that look like IBIS or ELNT which was mentioned yesterday as possible movement today? Give me IBIS, AMKR or ELNT any time. Look for stocks whose corrections lead to higher highs and not a bunch of head and shoulders, one after the other. |
