Let's see from the regular open if it will turn around.
Sunday, October 30, 2011
Investor Types to Avoid
Barry Ritholtz
RealMoney
April 19, 2005
Barry Ritholtz
RealMoney
April 19, 2005
Has this ever happened to you? You’ve been waiting to deploy some fresh capital capital. You’ve done your homework — checked the charts technical-analysis, looked over the fundamentals fundamental-analysis. You are ready to make a buy.
But moments before you pull the trigger, someone casually mentions something negative about this new target. It could be a coworker or some talking head on TV. Regardless, you hesitate, decide to do some more research, just to be sure… and the next thing you know, your stock pick is off to the races — without you.
All you can think is, thanks for nothing, buddy.
Apprenticed Investor: 6 Investor Types to Avoid
We’ve all had chance encounters like this. They can cause self-doubt, make you second-guess yourself, wreak havoc with an investment strategy.
There are two solutions to dealing with this kind of distraction: One is to become more confident in your own skills. This will occur as you continually educate yourself, which is what “The Apprenticed Investor” is all about. The more confidence you develop, the easier it is to stick to your investment plan and not let third parties bump you off track.
The other solution is simpler: Learn to recognize destructive investor personalities — and stay as far away from them as possible.
Last week, we discussed why gains and losses are ultimately the investor’s responsibility. But there are some people who can temporarily knock you off your game: These are people to avoid.
The Dirty Half-Dozen
• The Enthusiast: He’s always breathless; his companies are always on the verge. “Big news is due any day now.” There’s always someone about to “snap these guys up.” He’s entranced with new management, i.e., “The new CFO was employee No. 12 at Dell (DELL)!”.
At one time or another, we’ve all been bitten by the infectious salesmanship of the enthusiast. The story always sounds great… yet somehow, the stocks never seem to work out.
• The Tipster: The easiest of all the archetypes to recognize, this guy always has a hot story that simply cannot wait. It’s about to happen any minute — a deal to be announced or an imminent takeover.
While the “enthusiast” is all excited about the company, what gets the tipster jazzed is the source of info. “This guy I know is (choose one) head trader at a hedge fund hedge-fund/runs a major wire house desk/at the FDA/on the board of directors.”
[In 2004], biotech was hot and the tipster talked a lot about new drugs that were just about to get FDA approval (none worked out). [In 2005], the tipster [was] been big into government and military contracts; apparently, he gets to brunch with Donald Rumsfeld.
For a person who supposedly has information that — if true, is likely illegal — the tipster’s trading record is surprisingly bad. With all of his connections and illicit info, it turns out that the tipster is little more than a rumor monger — and one who’s usually late to the party at that.
• The Liar: Most industries have their fair share of B.S. artists. But there is a very special type of liar attracted to trading.
You know these guys; they never seem to have a losing trade. When they discuss their executions, they consistently manage to buy at the low tick of the day. When they sell, their executions invariably are the very best possible print — and on almost every sale.
Think about how often you’ve managed to get the very best print of the year — or even the day. Over the past decade, I can count on one hand the number of times I’ve top-ticked stocks on the way out: Iomega (IOM), Micromuse (acquired by IBM) and Qualcomm (QCOM). Meanwhile, I’ve had countless sells at the day’s low print.
Somehow, the liar manages to accomplish a decade worth of statistically aberrant prices each day, before lunch.
I never call these clowns out. Why show your hand? But I make a mental note who the liar is, and judge all future statements accordingly. You should do the same thing.
• The Permabull or Permabear: Among the most dangerous and costly clowns in the circus, these guys are responsible for more destruction of wealth than any other player.
You doubtless recall the permabulls from the late 1990s. Most are little more than slick salesmen. They do not do much in the way of original research, but you can imagine the inner workings of their minds, sifting through reports looking for just the right bullet points.
The permabull uses all of the right buzzwords, his patter is polished, his manner impeccable. By the time he’s done with his bullish sales pitch, you’re reaching for your checkbook — and historically, big trouble.
Some of the permabulls used to be on TV a lot. One in particular was a frequent TV guest, extolling the virtues of the Goldilocks economy and the ever-rising bull market at Nasdaq 5000. Then the bottom fell out, taking the Nasdaq down a mere 80%. He never changed his tune the entire way down.
On the flip side are the permabears, of which there a few classic examples. They’ve been bearish for as far back as I can remember. They may have avoided the drop from Dow 11,000 to 8,000, but they’ve been waiting for that drop ever since Dow 3,000.
Avoid these broken clocks like the plague.
• The Exotician: The more obscure, the better: that’s the motto of this creature.
Fascinated by exotic charts and little known indicators, the exotician changes methodologies as often as he changes his underwear.
Flitting from style to style like a butterfly, his enthusiasm for the esoteric merely masks the lack of conviction he holds for his previous theory.
Last week it was a combination Bollinger Bands and McClennan Oscillators. Before that it was Elliot Waves. This week, its MACD and Fibonnaci. Next month, it’s the Kondratiev Long Wave theorem.
It’s not that these techniques don’t have value, but the exotician simply can’t seem to stick with any one long enough to test their validity. The exotician is on a futile search for the magic elixir — which, unfortunately, does not exist.
• The Know-It-All: I love listening to people talk about stocks at cocktail parties. One of my favorite players is the guy who knows all the obscure details on a company: When they were formed, who sits on the board, the model numbers of new products, all sort of useless minutia. At his fingertips is an unholy checklist of data, all of which is completely irrelevant to the investment process.
This is especially true with tech companies. Their products are complex and ever-changing; the networks they sell into are even more complicated. The technical attributes of their products are way beyond the comprehension of the average investor whose VCR clock has been flashing “12:00″ since 1994.
Actual language overheard at a barbecue [in the summer of 2004]: “Wait till you see the new 2200 dynamic cross circuitry router — it’s going to kick Cisco’s (CSCO) ass.”
Now, I’m pretty tech savvy: I hooked up my own TiVo (TIVO), and I can swap out a hard drive or add RAM by myself. But comparing the technical attributes of high-end switching equipment, and then doing a cost benefit analysis of the technical advantages of that product line (relative to the rest of the marketplace for that equipment) is far beyond my expertise.
I’ll wager it’s beyond your ken also.
Be wary of these characters. They remind me of the kid in grade school who couldn’t hit, throw or field, but he memorized the stats of all the players on his favorite baseball team.
Folks like that often lack an appreciation for the game. It’s no different with investing.
This column was originally published on April 19, 2005.
Friday, October 28, 2011
How To Draft A Perfect Trading Plan
This
8-step approach to planning paves the way to profitable stock trading.
(RightLine) -- When it comes to trading stocks, it's not about how hard you
work. It's about knowing the right things to do, and putting that knowledge to
work. Making money in the stock market isn't so hard when you apply a simple
skill essential to converting the power of knowledge into profits ...
planning!
"Plan Your Trade and Trade Your Plan" is a mantra you should print out
and frame for your wall. Why? Because stock traders who carefully plan have a
much better chance of making money than those who don't. In fact, the simple act
of drafting a plan can significantly increase the odds that your trade will be
profitable.
A successful trading plan doesn't have to be complicated. Many traders draft their trading plans in a notebook or on index cards, while others use word processors and spreadsheets. Regardless of the method you choose, every trading plan must include certain components to be effective.
1. Choose Your Style
Before drafting a plan of action, traders will want to decide what style of trading they prefer. A broad generalization of "buy and sell stocks" doesn't work - the criteria needs to be specific. Successful traders make money in different ways, but each has a well-defined method. On the other hand, a losing trader's plan is always vague and ambiguous. In trading, it pays to be precise, so decide what you like to do and build your plan around that style.
2. Commit To Your Trading Rules
The best plans always include a set of solid rules that never get broken. These same rules should also address how real-time decisions will be made when managing your stock positions. Your judgment will improve as you gain experience, so it's good to allow some flexibility in less critical areas of your plan. At the same time, maintain strict rules in the more sensitive parts of your plan - such as Risk Control.
3. Determine Your Time Frame
The type of trading you prefer usually defines the time frame. Short term traders who enjoy a fast paced style won't find much action in weekly or monthly time frames, while less active traders generally find that the extremely short time horizons require too much time at the computer. Decide which style best suits your personality, and then select the corresponding time frame. It's usually a good idea to start by spending a few minutes each day. Begin by managing the trades using daily charts, then see if you want to shorten or lengthen the time frame. The RightLine Report offers a variety of stocks in different time frames. Due to the way these stocks are selected and the type of exit strategy used, most of the picks will work for traders who plan to hold positions anywhere from a few hours to a few weeks.
4. Locate The Best Stocks to Trade
Choose a method to determine which stocks to trade. If you are experienced in the markets you probably already have a number of ideas and sources. To make it easier for our subscribers, the Right Line Report presents a wide variety of good stock choices in every issue. They are based on an assortment of trading strategies and tactics that take advantage of predictable market behaviors.
You may also want to develop your own new methods for locating stocks. The RightLine educational section on our website at www.RightLine.net presents numerous market concepts to help traders understand the nature of price movement, identify trends in every time frame, and choose the tools needed to capture profits.
5. Determine Entry Points
This can be a challenge, for there are almost as many different ways to determine entries, as there are stocks. Again, in an effort to make it easier for our subscribers, the Right Line Report presents specific entry points for every stock in each issue. The exact level to buy or sell short is based on a wide range of technical factors used by our analysts to reduce risk and optimize the potential gain. If you choose to select your own entry points, we provide a large assortment of articles to assist you in developing your own personal methods.
6. Use An Intelligent Method to Select the Number of Shares to Trade
Very few traders and investors realize the importance of balanced "Position Sizing." Most make the mistake of ignoring the size of their trading account when taking on new positions. As a result, many unknowingly join the ranks of high-risk over-traders, and soon find themselves in big trouble. Don't worry, it's easy to avoid when you have the RightLine Risk Manager to help! This simple tool is free to subscribers, but if you prefer to do the math yourself, here are the basics:
"Never risk more than 2% of your trading capital in a single trade or more than 6% of your capital at a time. For example, if you have $100,000 in your trading account, the most you should be willing to risk is $2,000. Before buying a stock, review the chart to locate the best place to put a stop loss order. If you determine that the stock requires 5-points to keep you in the trade while it is trending up, the maximum number of shares that you can afford is 400. ($2,000 maximum risk divided by 5-points = 400 shares.)"
You can see that although doing the calculation isn't terribly hard, the Risk Manager makes the job a whole lot easier!
7. Determine Your Exit Strategy
After you've entered a position in a stock and it starts moving, then what? Traders have a lot of different choices when it comes to exiting trades, and the method used can make a world of difference. Some traders routinely use "trailing" stops as their exit strategy of choice, while others choose to exit when the stock hits a certain price, or breaks through a support level, or approaches a resistance level. Other traders will choose to exit based on intra-day swings or expected news releases. When choosing an exit strategy, remember to plan not only for the upside, but the downside too. The exit strategy is one of the most important parts of any trading plan, and it is fundamental for traders to select an exit plan before entering a trade.
8. Manage Risk With Stops
You may already know, but a "stop" is an order to buy at a price above or sell at a price below the current market price. Stops, or stop orders, are used to protect our capital and lock in profits. Placing stops is easy, but locating the best place to put them can be quite challenging. To assist traders with stop placement, every stock entry in the RightLine Report includes a suggested stop level. And of course, we offer plenty of help on our website for anyone who wants to learn more about managing risk with stops.
A successful trading plan doesn't have to be complicated. Many traders draft their trading plans in a notebook or on index cards, while others use word processors and spreadsheets. Regardless of the method you choose, every trading plan must include certain components to be effective.
1. Choose Your Style
Before drafting a plan of action, traders will want to decide what style of trading they prefer. A broad generalization of "buy and sell stocks" doesn't work - the criteria needs to be specific. Successful traders make money in different ways, but each has a well-defined method. On the other hand, a losing trader's plan is always vague and ambiguous. In trading, it pays to be precise, so decide what you like to do and build your plan around that style.
2. Commit To Your Trading Rules
The best plans always include a set of solid rules that never get broken. These same rules should also address how real-time decisions will be made when managing your stock positions. Your judgment will improve as you gain experience, so it's good to allow some flexibility in less critical areas of your plan. At the same time, maintain strict rules in the more sensitive parts of your plan - such as Risk Control.
3. Determine Your Time Frame
The type of trading you prefer usually defines the time frame. Short term traders who enjoy a fast paced style won't find much action in weekly or monthly time frames, while less active traders generally find that the extremely short time horizons require too much time at the computer. Decide which style best suits your personality, and then select the corresponding time frame. It's usually a good idea to start by spending a few minutes each day. Begin by managing the trades using daily charts, then see if you want to shorten or lengthen the time frame. The RightLine Report offers a variety of stocks in different time frames. Due to the way these stocks are selected and the type of exit strategy used, most of the picks will work for traders who plan to hold positions anywhere from a few hours to a few weeks.
4. Locate The Best Stocks to Trade
Choose a method to determine which stocks to trade. If you are experienced in the markets you probably already have a number of ideas and sources. To make it easier for our subscribers, the Right Line Report presents a wide variety of good stock choices in every issue. They are based on an assortment of trading strategies and tactics that take advantage of predictable market behaviors.
You may also want to develop your own new methods for locating stocks. The RightLine educational section on our website at www.RightLine.net presents numerous market concepts to help traders understand the nature of price movement, identify trends in every time frame, and choose the tools needed to capture profits.
5. Determine Entry Points
This can be a challenge, for there are almost as many different ways to determine entries, as there are stocks. Again, in an effort to make it easier for our subscribers, the Right Line Report presents specific entry points for every stock in each issue. The exact level to buy or sell short is based on a wide range of technical factors used by our analysts to reduce risk and optimize the potential gain. If you choose to select your own entry points, we provide a large assortment of articles to assist you in developing your own personal methods.
6. Use An Intelligent Method to Select the Number of Shares to Trade
Very few traders and investors realize the importance of balanced "Position Sizing." Most make the mistake of ignoring the size of their trading account when taking on new positions. As a result, many unknowingly join the ranks of high-risk over-traders, and soon find themselves in big trouble. Don't worry, it's easy to avoid when you have the RightLine Risk Manager to help! This simple tool is free to subscribers, but if you prefer to do the math yourself, here are the basics:
"Never risk more than 2% of your trading capital in a single trade or more than 6% of your capital at a time. For example, if you have $100,000 in your trading account, the most you should be willing to risk is $2,000. Before buying a stock, review the chart to locate the best place to put a stop loss order. If you determine that the stock requires 5-points to keep you in the trade while it is trending up, the maximum number of shares that you can afford is 400. ($2,000 maximum risk divided by 5-points = 400 shares.)"
You can see that although doing the calculation isn't terribly hard, the Risk Manager makes the job a whole lot easier!
7. Determine Your Exit Strategy
After you've entered a position in a stock and it starts moving, then what? Traders have a lot of different choices when it comes to exiting trades, and the method used can make a world of difference. Some traders routinely use "trailing" stops as their exit strategy of choice, while others choose to exit when the stock hits a certain price, or breaks through a support level, or approaches a resistance level. Other traders will choose to exit based on intra-day swings or expected news releases. When choosing an exit strategy, remember to plan not only for the upside, but the downside too. The exit strategy is one of the most important parts of any trading plan, and it is fundamental for traders to select an exit plan before entering a trade.
8. Manage Risk With Stops
You may already know, but a "stop" is an order to buy at a price above or sell at a price below the current market price. Stops, or stop orders, are used to protect our capital and lock in profits. Placing stops is easy, but locating the best place to put them can be quite challenging. To assist traders with stop placement, every stock entry in the RightLine Report includes a suggested stop level. And of course, we offer plenty of help on our website for anyone who wants to learn more about managing risk with stops.
Taking Precautions
Have you ever had one of those days when everything went wrong? Of course you have, everyone has had such a day. Maybe a string of losing trades, a bad dream, in any case, you’re on edge in the morning. When you are on edge and anxious, it seems like everything can start to go wrong. Suddenly, you’re unable to regain your composure and trade in a focused, logical state of mind. At times like these, the only way to recover quickly is to take precautions to prevent a worst case scenario getting the better of you. In his book, “Mastering the Trade: Proven Techniques for Profiting from Intraday and Swing Trading Setups,” John F. Carter shares his office arrangement, and how he takes precautions.
The office consists of multiple computers. One dedicated to emails, instant messaging, and searching the Internet. This computer is more likely to be attacked by viruses and spyware, but since it is not used to execute trades, when it becomes disabled it has no bearing on execution. In addition there is a backup laptop, attached to a dialup modem connection. Should the electricity go out or the broadband Internet connection fail, he still has access to his accounts and price quotes. Mr. Carter represents the trader who is prepared for any circumstance. Should one of his computer systems fail, he has a backup system.
The motto, “be prepared” is tantamount to success, when it comes to trading, . While there are many things that can certainly go wrong, why worry about your computer equipment failing? When you concentrate intensely on how earnings reports, media coverage, or world events may ruin your trading plans, why spend precious time worrying about what you can control interfering with your trading?
The winning trader takes precautions to control the things that can be controlled, he/she therefore has enough mental energy to focus on events that cannot be controlled. What can you control? You can control your energy level by eating right and getting enough sleep. You can control your feelings of anxiety by avoiding caffeine and exercising regularly. And you can avoid serious losses by managing risk.
It may seem obvious, but many traders fail to take precautions. They trade by the seat of their pants and when something goes wrong, they blame it on anything or anyone but themselves. Take responsibility, you can’t control everything. It is however, critical to your survival to control what you can, and accept what you can’t. Taking precautions is a significant way that you can increase your chances of achieving financial success.
Trade Summary
Exited the trade at the upper arrow because of the big red bar signalling the price is dropping...the entry was at the lower arrow...that's how trading is all about...bailing out too early to avoid losses...no need to be greedy...as the saying goes...bulls make money...bears make money...pigs get slaughtered...and I don't wanna be a pig...
Exited the trade at the upper arrow because of the big red bar signalling the price is dropping...the entry was at the lower arrow...that's how trading is all about...bailing out too early to avoid losses...no need to be greedy...as the saying goes...bulls make money...bears make money...pigs get slaughtered...and I don't wanna be a pig...
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