Finding a Stock -- By: Bill Kraft
Copyright 2008, Makin' Hay, Inc., All Rights Reserved
Bill Kraft
Editor |
Perhaps the question I am asked most often is how do I find what stock to trade. Quite honestly, I don't think that is the most important question a successful trader can ask, but it is clearly one that is on the minds of many retail traders. First, I should say that there are many ways to find trading candidates and that the specific methodology should be chosen by each trader individually and become a part of his or her business plan. In my book, "Trade Your Way to Wealth" , I set out, in detail a way to construct a business plan and I sincerely believe that having such a plan is much more important than the specific method a trader may chose to select a particular candidate to trade.
That having been said, there are a few basics that may be helpful in narrowing the search for candidates to trade. Narrowing, after all, is a key ingredient to ultimate selection of the specific trading vehicle. Do you want to trade a whole market, for example, or are you interested in finding a specific stock or option to trade? Trading the whole market can be accomplished with various Exchange Traded Funds (ETFs) and removes some of the risk inherent in trading a single stock. Generally speaking, trading the whole market may also level off volatility, but will result in a trade-off as does almost every decision one will make when trading. A single stock may offer greater volatility or movement than a market and, therefore, may have a greater potential for a higher reward, but, at the same time may provide higher risk as well. It is unlikely that a market will go to zero but many stocks have done exactly that or at least lost an enormous percentage of their value. The recent troubles of Bear Stearns bear witness to that phenomenon.
Clearly, it is important to know what the market is doing even if one is going to search for a specific stock. A trader is really playing against the odds if he is buying stock in a continuing bear market. Fact is, a bear market is a bear market because most stocks are going down. A bullish play in a bear market is contrarian and while contrarian plays certainly can do very well, picking a bottom can be very hard to do. A bullish play in a bearish market may succeed, but it is less likely to do so than in a bull market. If the overall market is bearish, why not look for bearish candidates. If the trader does not like to short stocks or employ other bearish strategies, why not stand aside until the bull returns? Bearish plays (and I discuss a bunch in "Trade Your Way to Wealth" ) can be very profitable and sometimes very quickly, but they are not for everyone. Some people will not make a bearish trade because their overall philosophy is bullish; others avoid the bear plays because they do not know how to profit from a bear move. Any reason an individual may have to avoid bearish plays in a bearish market can be fine, but that does not mean it is necessarily a good idea to try the bullish plays in a falling market. Waiting for the upturn is perfectly acceptable.
I prefer to make bullish plays in bullish markets and bearish plays in bearish markets. If I am going to make a bullish play in a bearish market, I would at least like the stock I am buying to be in a bullish sector even if the market is bearish. It is quite rare for all sectors to be bearish even in a bear market so if one is bound and determined to make a bullish play in a bearish market, why not look for stocks in sectors that are bullish. Obviously, the reverse holds true as well. If one likes bearish trades better than bullish trades and the market is bullish, how about looking at a bearish sector to find a candidate for a bearish trade.
The fact is that it is impossible to be right all the time in the markets. Almost everyone who trades will have losing trades. The successful traders are the ones who give themselves and edge, who take what the market will give them rather than try to fight the markets, who know how to manage risk, and who continue to educate themselves. Over the years, I have coached some traders and still do on rare occasion. One of the things I have noticed in my own trading and in my coaching experience is that those who can exercise discipline and trade in the present rather than worrying about the past or trying to predict the future are the ones who are most likely to be successful. Learning ways to give yourself an edge, even a slight edge, is key. Just look at the casinos in Vegas. They don't make money because they are right on every bet; they make money because they make sure the odds, however slight, are in their favor.
Good Trading!
Bill Kraft
Success Trading Group -- by the Success Trading Group Team
Our Success Trading service delivers quality trading ideas for the elite investor that has the financial wherewithal and market nimbleness to profit on small moves in a stock's price. Become a member and you will be provided with email and/or PDA alerts intended to provide you with the opportunity to make many, many profitable trades.
Here is a play from the Success Trading Group:
Emerson Electric Co. (EMR)
Our Success Trading Group members scored another winning trade this week. We closed our position in Emerson Electric (Ticker: EMR) which we held for about 9 trading days. We like Consolidated Edison (Ticker: ED) below $40.40 and Kinder Morgan Energy Partners (Ticker: KMP) below $50.
Have a great weekend and we'll trade next week.
Success Trading Group Team
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Option Trader -- by Bill Kraft
Our Option Trading Service is for conservative traders that understand leverage principles and enjoy the challenge of options trading. We focus on powerful option trading strategies that place volatility and momentum in your favor. And we pride ourselves on always minimizing our losses! The Option Trader service utilizes standard trading in Puts and Calls as well as strategies using Leaps, Straddles, Credit Spreads, Calendar Spreads, and Naked Puts. But no matter how sophisticated a strategy may be, we ALWAYS know our downside potential on every trade.
Here's a look at a trade Bill is currently working on:
Telefonos de Mexico, S.A.B. de C.V. (TMX)
TMX has returned to a resistance and couldn't break through this past week. I'm looking at a possible entry into a short term bearish call spread or possibly a straight directional put play buying the 4 to 6 month expiration slightly in the money puts to try to profit on what looks like could be a $3.50 or $4 retracement to the bottom of the channel.
Good Trading!
Bill Kraft
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Trend Trader -- by Bill Kraft
Trend trading as we try to practice it is a form of momentum trading. We prefer to try to capture profit out of the middle of the trend rather than try to catch reversal at bottoms and tops. Here's a look at a trade Bill is currently working on:
Watson Pharmaceuticals Inc. (WPI)
Watson Pharmaceuticals (WPI) is at an important intersection between a price resistance area and an uptrend line. I am watching to see whether this stock can break above the resistance and continue the trend up. Several factors indicate it may be able to the job, but it isn't quite yet the time for me to buy.
Good Trading!
Bill Kraft
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$10 Trader -- by Bill Kraft
We really enjoy trading stocks that are $10 and under. Often they provide the chance to enjoy high percentage gains and, of course, at worst, the risk is limited to what we paid for the stock. Here's a look at a trade Bill is currently working on:
PeopleSupport Inc. (PSPT)
Here is a stock that has been trading between $9 and $10 much of the month. In early March, it had gapped down almost $3 and could fill that gap if it can break above the $9 level. I'll need to be careful of a false break out, but even if one does not appear, PSPT may still offer a roll play if it dips again to the $8 range.
Good Trading!
Bill Kraft
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