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Tuesday, March 01, 2005
Market Recap
The market continues to see-saw back and forth, up one day and down the next, with no clear direction coming until we can break into new highs on the S&P and Dow. Both of these indexes are flirting with new highs but they cannot quite get over the hump. The Dow gained 63 points today, just 37 points below its 52 week high. I think it can shatter that tomorrow and if it does and it closes at new highs, this market should be off and running. This would coincide with the historically good month of March that the stock market usually has. The S&P gained 6 points today to close just 7 points under its 52 week high. The NASDAQ gained a nice 19 points but it does not look very good technically. The NYSE is the place to be for leading stocks as the NASDAQ continues to lag. We will continue to focus on these market leaders until the NASDAQ joins the party.
The Soul of an Investor
Last week we did a commentary on why I do not buy and hold stocks. This is not to say that buying and holding the right stocks is not a good way of investing. You just need to know when to get out of them should they start to fall. I ran across an interesting article on CNN and thought it would be worth mentioning.
http://money.cnn.com/2005/02/25/magazine/magin_hur...
Jack, the focus of this article, has a few decent practices but is also overly restricting his portfolio. Jack is an extremely disciplined trader but his style of investing is preventing him from having a portfolio worth millions, rather than a few hundred thousand. I believe that CNN is doing a great injustice to investors by making a 10% return seem to be bigger than what it really is. We have made several times more than 10% on many of our trades in 2003 and 2004. If you put together a string of successful trades using our disciplined approach, your gains will far exceed the 10% market returns that CNN makes sound so good.
Jack and the Green Stock
Jacks' story is very inspirational and we should certainly consider the hardships that this individual has endured but is this really the ‘soul of an investor'? I cannot stress enough the importance of breaking out of the traditional investors' mindset. We know what the risks are when we trade, and we mitigate that risk by only buying stocks with solid charts and putting only 5% of our capital into any one trade. Jack also only buys what he knows. My position on trading is that I do not have to know anything about a company to participate in the stocks' run-up. I am in a stock for the short term and therefore do not need to do any research on the company because I plan to sell for a quick profit once the stock loses momentum. This is a drastic contrast from what I would do if I were going to invest long term. Naturally, if I was going to invest long term, I would want know about the companies' fundamentals. For short term traders, the fundamentals simply do not matter. If we limit ourselves to trading only what we know, we would be cutting down the potential investment pool from thousands of stocks to perhaps a dozen or so because we simply do not have the time to do fundamental research on all of the solid charts that we see everyday in our stock scans.
CNN is brain washing current and future investors by telling them that a good investor is someone who buys a stock and holds it forever. In my opinion, if you are not checking your stocks frequently, even in a long term portfolio, you are doing yourself and your portfolio a great injustice. You can buy and hold stocks for a long period of time but the stocks you choose to hold for the long term should be growth oriented. Holding big name stocks might look like an impressive portfolio, but are these really improving your bottom line?
Think Long Term but Trade Short Term
We trade the way we do because we know we will make tremendous profits over time by compounding our gains with each successful trade we make. What we need to do is think “long term” but trade “short term”. We move in and out of stocks as momentum enters and exits them. By compounding those profits into the next trade, you can accumulate wealth much faster than holding through the pullbacks. Those of you who do not trade that often can still utilize this type of trading style.
After the Fact
I will admit that there are certain instances where holding stocks would far out pace our trading returns but that is only if you are in the right stocks, in the right sectors. For example, buying and holding Energy, Home Builders and Metal stocks last year, would have been a super decision which would have out paced my returns. However, we only know this after the fact. A year or two ago, we did not know that these sectors were going to be this strong. We also do not know how long that strength will last. When there is a sector rotation, and there will be one eventually, it will be the time to exit. Unfortunately, many long term investors will stay in these stocks and ride them all the way back down, giving back all their profits because they “are in it for the long term.”
The Weekly Chart
Remember, if you are buying stocks for the long term, then a daily chart is useless. You are better off using weekly charts and checking on your stocks at least once a month. It makes no sense to be worried about the daily fluctuations in your stocks using daily charts. You can buy solid charts for the longer term but you should still check them monthly. Please take the CNN article with a grain of salt, after all CNN does not really know “Jack.”
For New Members
For all of the new members with us, please make sure to read the link “How to use Bulletin” at the bottom of the Bulletin page on the website. It is critical that you know how to use this trading tool before trying to trade the stocks mentioned. The effectiveness of your trades will diminish if you do not completely understand how the information is presented.
Please Tell A Friend
Please tell a friend about our service. As always, thank you for your support past, present and future!
Earnings Calendar
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.
http://www.fulldisclosure.com/highlight.asp?client...
Stockcharts listing
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