July 8th, 2010 | 
Author: Do Your Homework
Have a great Day! Chuck Hughes.
Consider the novice traders who wanted to buy a stock off its highs. They may have moved in to pick up shares in late June near $27 or so, which was more than $7 off the recent high. Those buyers never saw their trade turn profitable. What if they “averaged down” in the $20 area, hoping to catch a quick bounce to let them out? All they did was compound their losses. What about now that the stock is trading near $5.00? Would you feel like getting up and running after falling off a 20-story building? This stock probably doesn’t either. It’s best to stay away from chart patterns like this until the buyers regain control and
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Do Your Homework!
Chuck Hughes thought you would find this interesting.
Consider the novice traders who wanted to buy a stock off its highs. They may have moved in to pick up shares in late June near $27 or so, which was more than $7 off the recent high. Those buyers never saw their trade turn profitable. What if they “averaged down” in the $20 area, hoping to catch a quick bounce to let them out? All they did was compound their losses. What about now that the stock is trading near $5.00? Would you feel like getting up and running after falling off a 20-story building? This stock probably doesn’t either. It’s best to stay away from chart patterns like this until the buyers regain control and the stock begins to build some upside momentum.
Buying stocks in downtrends is a recipe for disaster. Save you’re bargain-hunting for the retail stores and holiday shopping, but prepare to pay up if you want to buy a stock and turn a profit!
Having a trading routine is essential. It doesn’t even have to include a lot of steps, just as long as you have a routine in place which allows you to gauge market strength or weakness and formulate some trading ideas to capitalize on your market view.
Doing your homework for the trading day doesn’t make you a nerd, but wearing this watch would.
Doing my homework includes screening for chart patterns, staying aware of scheduled news events (Fed meetings, earnings, economic releases, etc.), and monitoring my trading performance in case my trading strategy needs an adjustment. Staying on top of these things gives me a game plan for my trading each day. I get a feel for the market by seeing how many stocks or sectors are strong, weak, or just flat. It lets me feel prepared, knowing that I’m starting the day with more confidence than had I just walked into my office and started buying and selling stocks randomly.
While I cannot predict what the market will do, I can certainly outline a plan of trading actions to implement once the conditions are right. Being wrong is one thing, but indecision is unacceptable in this job. Trying to locate trades only after the market is already on the move is often futile. Even when I do find stocks to trade on quick notice, many times I feel as if I’m chasing them, which means inferior risk/reward setups and increased slippage. No good!
So find what works best for you and make a habit of doing your homework. You’ll trade more decisively and reap the benefits of daily preparation!
Down trending Stocks – Don’t Buy!
Thanks to Chuck Hughes.
Everyone wants a great deal. If you don’t think so, just consider the day-after-Thanksgiving sales with people lined up outside the stores at 5am to buy merchandise on sale. We want things now and we want them cheap! When it comes to stocks, however, I know better.
They say to buy low and sell high. It’s a good concept if you can get it to work, but it implies that buying low is the first thing to do. Novice stock traders look to buy “cheap” stocks, whether it’s just a low-priced stock or a stock well off its highs. Remember, cheap stocks tend to be cheap for a reason!
Low-dollar stocks often fall into one of two categories: the former high-fliers which have split so many times and come down so far that they are simply too liquid and “thick” to make much of a move (LU, NT, etc.), and stocks which are cheap because they fizzled out long ago and no buzz has been generated since. These kinds of stocks don’t move enough for an active trader, unless you are as interested in trading so many shares that your broker makes as much in commission as you do in profits.
A down trending stock is making lower highs and lower lows. Money is coming out of it. People are walking away in search of finding something more attractive. When you buy a stock, you want it to go up, so look for stocks with some buzz, some positive activity, and some momentum.
An example of how disastrous it can be to buy a down trending stock is MOVI. This stock began trending lower many months ago, and has shed most of its value.
MOVI continues to trend lower, and buying a “cheap” stock would have been costly!