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Monday, February 14, 2005
Market Recap
The markets stood still today basically trading flat as there was no spark to get things moving along. The Dow lost 5 points, the NASDAQ gained 6, and the S&P was up fractionally. The intra day ranges for the indices were incredibly small and provided little volatility for anyone trading index shares. The Dow had a range of only 29 points. The NASDAQ's range was just 8 points and the S&P had a 3 point range. Talk about putting us to sleep, imagine anyone trading S&P futures today. zzzzzzzzzz
The Dreaded Stop Loss Order
For any traders and members of our group that are having trouble getting whipsawed out of your positions with protective stops, I know this is frustrating and stops are bad, in some cases, but for the most part they do protect your capital and I would not trade without them. Stops in a bull market work great but they are hard to use in a flat or sideways market. Most of the time you will get taken out if the market lacks direction. I have been shaken out of stocks that I have had a stop loss order entered and as soon as my stop fills, the stock goes right back up. There is nothing we can do about that. It happens but, more times than not, the stop loss order will save you from a drastic decline in price. It is better to get out with a small loss rather than suffer a big one by not having a stop loss order in place. The other option would be to form a mental stop in your head and execute the trade if the price gets there.
The Trade Journal
I would also like to share something with our new members tonight that I used to do when I first started trading. I formulated a trade journal to record all of my trades. I used this journal to write down all of the reasons I bought and sold a stock. Each time I made a trade, I wrote down why I bought it. For example, I bought XYZZ today because…… and I would list the reasons such as: insider buying, good earnings, analyst upgrade, news release, and so on and so forth. But guess what? It seemed I was losing money on every trade. This, of course, was before my TA years and while I was glued to BSNBC for my trading news. This was a big mistake of course.
Technical Analysis vs. BSNBC
Then, I started using TA and I kept entering my reasons for buying the stocks. My TA reasons were things like: 50/200 day crossover, broke above 200 SMA, broke above trend line, increased volume by 100%, made 52 week high and so on a so forth. All the stocks I bought using my own TA seemed to be going up, while the stocks I bought because of news or listening to the talking heads on BSNBC were headed in the wrong direction. I kept this journal for well over 300 trades. It helped me decide to use TA only and block out everything else I hear about stocks from the media.
You will have to learn to separate the BS from the real deal and for my money; Technical Analysis is the real deal. I do not listen to many people that come on the financial news channels because most are just full of wind. Now, I am not saying that you cannot get some good information on these networks. I do listen to them for any news that might move a stock or the market in general. However, I take most of what they say with a grain of salt and continue to watch the charts. The charts will send me the message, not my TV. I do have BSNBC on most of the day but it is muted. I occasionally glance over and see if there is anything that I may want to hear and I will turn up the sound but, for most of the day, the TV is muted.
Having said that, there are some people I respect and will listen to. Believe it or not, they are not all crooks. For instance, I do listen to Ralph Bloch of Raymond James. When he is a guest, I immediately turn up the sound. He is not afraid to tell it like it is. He called the bubble in early 2000 and I still remember his quote, “This NASDAQ is on stilts and will fall hard soon”. He also said, “Many of the Internet stocks would become penny stocks and may never recover”. He was right on the money with that statement. I still remember him saying that like it was yesterday. These stocks were trading at over $100.00 a share at the time. I did not believe him then, but he earned my respect a few months later as I began to see everything he said unfolding before my eyes. I started to take many short positions and I road many of them all the way down. I covered my short positions in October of 2002 and started entering selective long positions and have been trading on the long side of the market for the most part since.
Some people have earned the respect for life saving calls. Ralph Bloch saved my portfolio's life. If I had not remembered what he said that day, I may not be trading today. The lesson here is, I may joke about BSNBC a lot and yes, I think it is a waste about 90% of the time but, there is that 10% of the time that they actually have a decent guest on or cover some market moving news. Besides that, after looking at my computer monitors all day, Alexis Glick is very easy on the eyes, and that is the extra bonus.
Listen to Only Those You Can Trust
Listen to those you trust, read all you can about the markets and how they work, make that trade journal, and document all the reasons for your trades. It is a little extra work but believe me, it is worth it and when you find what is working for you, you will have much more success in the stock market.
Reminder
There will be no bulletin on Thursday February 24th due to the fact that I will be out of town for that one day. I will not be available for trading that day either. No alerts or trades will be made that day. It will be business as usual on Friday the 25th.
Please tell a friend about our service. As always, thank you for your support past, present and future! We will see you Tomorrow evening.
Do not forget to check your short-term holdings and know when those companies are reporting earnings. Holding a stock through earnings is risky and I do not recommend it. You can always buy the stock back after the dust settles.
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