Trading 235

I am looking for the lowest risk trades in the market. My investment method is to find stocks that have encountered recent dips in price, making their valuation attractive and the trading risk low. By buying these stocks we are hoping for big upside swings. Going into these trades, we expect that we will likely have more losing trades than winning trades, but we will manage the trades such that the winners go up 3 to 5 times more than the losers go down. Stick with the method and it can result in substantial gains.

Here's how to apply the strategy:

If the stock looks like it could go up $3, we need to make sure the stop loss is $1 or less. Furthermore, if the stock moves up $2, we can then move the stop loss to breakeven (the price we bought at). We will NEVER cost average down on losers. Repeat the last sentence to yourself, with emphasis on the "NEVER" part.

We can also apply this strategy to daytrades. If a stock moves up in a nice uptrend on large volume in the morning, then drops below the 20-period MA in late morning, we could buy the stock when it shows some early afternoon support (and the intense trading seems to pause) and we thereby assume low risk and a potentially big reward if the stock climbs back up and breaks the high that was set earlier in the day. Sometimes the reward from this type of trade can be huge. I've seen plenty of stocks that were running in the morning take a big dip and then go on to give you a double if you bought the late morning dip and then sold at the close. The trick is to cut a loser short and let a winner run.

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7/25

An Idea for a Longer Term Trade

According to this excellent article, we'll soon be facing a uranium shortage which will mean only one thing: big profits for uranium producers like URRE.  It seems very likely that nuclear power will make a comeback in the US, faced with the prospect of $200, $250, perhaps $400 per barrel oil, prompting the production of new nuclear plants, which have been extremely cost prohibitive without tax subsidies.  But now, given the oil shortages and environment concerns over burning fossil fuels for energy, the nuclear power companies are likely to recieve a gift from the US government in the form of billions of dollars in funds that will enable the construction of new plants.

 

CROX is Mega-drop of the Day

Since OSTK has made such a nice comback (made lows in the $13s, now over $18), I figured I should be sure to mention fellow 40% loser CROX.  It doesn't suprise me at all that this stock is now at $5 or so, way off its 52-week high in the $70s...ouch, very very bad for long-term shareholders!  Brightly-colored goofy plastic sandal-shoes were just a fad, I see less and less of these things being worn today, and CROX was just a pump-and-dump that went up like crazy for about a year and now gets dumped for a year.  Still, today was an extreme drop and there are shorts to squeeze so I'd expect to see some recovery, maybe starting next week. 

 

7/19

Top of the List for Monday

OSTK was pounded mercilessly like a pitiful Mike Tyson opponent on Friday.  Despite some good news - 27% quarterly revenue growth and 30% gross profit dollar increase - the stock tumbled 40% due to expectations of slower growth for the second half, probably something around 17%, possibly higher.  Does this justify the 40% overnight slide?  I don't think so, so this is at the top of my watchlist for Monday.  It could easily make a 10 to 20% comeback as shorts get squeezed and traders get bullish.  For the long term, the stock is pretty much a gamble, all bets riding on their results for the rest of the year, which remain pretty iffy right now. 

7/18

OSTK Possibly Overdone Today

Overstock was sold heavily today due to an analyst downgrade.  I don't pay much attention to analyst opinion for long term investment in stocks.  But downgrades especially tend to make a stock very active, in this case lots of selling.  Possibly overdone, as it is done over $10 from yesterday and the company actually increased quarterly revenue year over year...ridiculous.  Look for a possible bounce.  Currently at $17.50.  Could be good for a bounce back to $20.  I wouldn't hold it for the long term, though.

7/13

Triquint Revisited

Back at the end of February I recommended TQNT, saying that it was undervalued.  I also mentioned that there were some rumors brewing that TQNT's power amplifier chips would have a place on the iPhone 3G's logic board.  Well, the rumor has been confirmed by iFixit, a company that recently sent reporters to Australia to snatch up the first 3G iPhones for the purpose of taking them apart and letting geeks know what's inside.  This is pretty big news for a chipmaker as small as TQNT.  Their current revenue is only 475M, and Apple will be selling millions of iPhones at the new $199 price, so this deal could have a significant impact on Triquint's future revenues.

7/10

Another Fussy Day in the Market

FRE and FNM showed how abysmal their troubles are, AAPL was a bit volatile the day before iDay 2.0, but pretty boring, barely managing to close up on the day.  NCOC could be a good buy at these levels.  I'd put in a stop around $5.50.  Reflecting back on their last report, guidance was raised and it should be generally obvious that coal will be in demand if oil is in shortage.  All things considered, though, my inclination is to avoid this market until some sort of market direction is established.  There are some good buys out there but they may get even better.  Remember SOLF, recommended back in March?  It has made a big retracement and of course being volatile as hell it could get close to $10/share again, which would make it a strong buy.

 

 

7/9

Another iDay Coming Soon to an AAPL Store Near You

Yes, here we go again.  Apple Computer will be releasing the new 3G iPhone on Friday.  Articles and hype are abound again across the internet.  Sometimes all of this buzz seem to have a magical impact on Apple's stock trading.  Today the stock moved up nicely so it may be just the beginning of a run leading up to the big day.  We now know everything great and all the shortcomings of this product, well beyond the degree to which we know what the next Blackberry (RIMM) will do.  But we don't know what the box will look like - hey, maybe that will be enough to move the stock.  Anything could happen, potential for a $10/share gain by the end of the week...potential for swing or day trades exists.

7/6

A Chart to Burn Into Your Brain

This is a chart pattern that occurs every once in awhile and can provide a good trading opportunity.  The sequence usually begins with some bad news, causing a large gap down on a daily chart.  The gap down is caused by panic sellers flooding the market with sell orders, trying to get out at any price.  Sometimes the panic selling is irrational or becomes irrational and the price goes down irrationally low.  This was the case with MBRK on Wednesday and Thursday before the 3-day weekend.  Wednesday the biotech released mildly negative news that they would not be selling the company, causing consternation for investors who had hoped for a buyout in the $4-$8 range.  As you can see from the chart, however, the sellers overreacted on Wednesday and the stock offered a great trade that could have been a 50% gain overnight and holding through Thursday.  One could have also made smaller profits by only trading the rally on Thursday.  So it's always a good idea when trading to keep an eye on the biggest percent losers stock list and see if you can find charts with extreme gaps down like MBRK.  I didn't notice this one until Thursday morning but it still offered a nice trade opportunity in the afternoon, when the stock really started to rally hard.  There's a chance that the rally could continue into Monday so it's worth keeping an eye on it.

You can see from the above chart of MBRK that the ideal trade would have been to enter during the most extreme end of the panic sell-off, when price neared 1.25.  You could have then used a .25 stop and a .75 target gain.  This would have resulted in $750 profit for every 1000 shares traded.  Not all gap down sell-offs result in such a nice recovery, and some continue to sell-off, so a carefully placed stop loss is very important to prevent excessive losses.  Try finding these panic sell situations and watch the order flow to see how and when they bounce.  For these trades, you often must react quick, and buy when the sell volume spikes (panic is at its most extreme), while also watching for the price to "stick" a little bit (which is usually the signal for buyers to enter in).  It's very important to get out of the trade quickly if it goes against you, because the panic selling could continue.

7/1

Sorry, I Don't Care for BS Yahoo! Finance Articles

Check out this ridiculous article from RealMoney.com which mistakenly describes this summer's trading action as a stagnancy. The author of this idiotic article says we traders are unhappy in this muck and mire. Hello, wake up dude! Where have you been during the crazy runup in oil? There have been countless opportunities for insane profits during this so-called oil bubble. Every stock with the word "petroleum" or "energy" or just about any other term in its companies name that describes fossilized dinosaur goo that can be burned in some way or another has been doubling, tripling, spiking and otherwise just moving up...fast! Well, at least according to Mr. Farley "we still have six months to take firm control and get the results we hoped for".

Welcome to the 3rd Quater

Here we are...the third quarter of 2008 (or the second half). If you were a buyer of CNEH yesterday, which I mentioned on Sunday, then you've made a great trade to start this quarter or half or whatever you will. And if you bought VLNC, then hopefully you cut your losses short...if not, then you seriously need to think about whether trading is right for you. The most important thing traders need to recognize is that cutting losses early is soooo critical for being successful at this game. So the trades I mentioned Sunday should have played out like this: if you bought both, then you should have quickly cut your losses on VLNC and then let CNEH run. You should have profited 2, 3, 4 maybe even 5x as much on CNEH as you lost on VLNC. That's how it works.

If you were lucky, you just bought CNEH and avoided VLNC because CNEH has the strong earnings growth as I mentioned.

6/29

A Couple Breakout Plays for Monday

On Friday, VLNC and CNEH.OB were breaking out at the close. CNEH actually has pretty good fundamentals based on strong earnings growth, VLNC appears to be mostly hype. But still, hype can definitely move stocks. Both are breaking out so I'll be looking for them to make a run starting Monday. Definitely watch them this week, and if the volume is there then why not get in for the ride?

6/16

Some Good Websites

Forget about Yahoo! Finance or The Motley Fool - the best place to get your ideas for trading or investing are the multitude of blogs out there. One of my favorite pastimes is to browse the web for new blogs that are fun to read and actually provide valuable information. Unlike many of the journalists at Yahoo! and other big sites, many of the authors of these blogs are actually trading for a living. One recent good find was Chris's blog where he came up with this great idea for a Stock Bias Test. (If you really want to learn to trade, then try trading no-name stocks - literally). Or if you're interested in the sort of stuff that big money traders are into (indexes and ETFs, etc.), check out Mike's blog.

6/4

New Stock to Watch

CPSL is a Chinese company that manufactures high precision steel products that are used for automobile parts and components, friction plate discs, saw blades, appliances and more. Sounds like a good market to be in considering the behemoth industrial growth of China. Recently the stock soared on the latest earnings report, only to fall back down quite a bit. I'd be a bit cautious with this stock as it seems to have a habit of falling waaayyyy back down to the $3-$4 range after it spikes, but since this is sort of an earnings spike it might be able to hold its present level. I'd wait and see if holds support at $5.30 and wait for a solid breakout. At the current price, there is definitely some downside risk but its explosive volatility make it worthwhile to watch for the next week or so.

5/28

A Nice Uptrend to Watch or Buy

As I mentioned in a previous post, the energy sector is hot right now and almost any little energy-related stock has been trending up over the past month or so. For the past two months HUSA has been rising out of a base, going from $4.50 to $8.00 during this time. Right now it has made a little dip and appears to be finding support on the 20-day MA. This little dip might present a good opportunity to buy in. The upside to this trade could be huge because if it manages to break $8.00 then it will be likely be catching the attention of a lot of traders because it will break its December 2006 highs as well as the recent May 22 high. These type of multi-timeframe breakouts are always the best ones to buy and can run for several days or weeks. So you really have two options: 1) watch and wait for the breakout to occur on good volume and then buy or 2) buy it on this little dip and risk the chance that nothing will happen but win big if it does breakout. Beware the company is a bit of a joke (only 2 employees and the stock is already priced high given their earnings), but we might expect some growth in their earnings.

Performance Update

5/12

Eye on Sector Performance

It's always a good idea to keep an eye on the overal trending behavior of the various sectors in the market. If we know which sectors are hot or which ones are currently out of favor, we can tailor our trading strategy to focus on stocks in those sectors. It's always tempting to plunge into the hottest sector of the week, and this can certainly provide some short-term profits. But if we think about the past and the fact that the best trending sectors have without exception eventually formed a bubble and then burst in a more catastrophic fashion than the way they went up, we should give some pause to jumping on the bandwagon. The tech bubble collapse is probably the best recent example of the final outcome in a "perfectly trending" stock market event. According to the site Trader Feed, the energy sector is currently the hottest upward trending sector and healthcare is in the biggest downtrend. This makes me want to go digging for heathcare stocks because there is less downside in that sector. Energy, on the other hand, may keep moving up in the next weeks, months or maybe even year but will eventually overextend the trend. While it might be prudent to have some exposure to this sector in order to capitalize on what is basically the only bull sector right now, it would probably be a good thing to look for some of those health-care issues which are at their bear lows and have cheaper valuations.

Where to Find Stocks to Trade

I like to know which stocks are "in play" on a daily and weekly basis. On Yahoo! Finance, you can go to the most active issues list and scan over those. I like to weed out the thinly traded ones or the ones that seem like random spikes and then write down the ones that seem to be very liquid and moving with huge momentum or the ones that are forming patterns like price breakouts or support/resistance testing. Another good place to look (with more issues, including tons of stocks on the BB (bulletin board) is ClearStation Tag & Bag. . I really like this list and usually check it every day to try to find new stocks to trade.

5/3

Market Needs A Correction: I think the Bears Will Start Waking Up

sorry...somehow all my older posts got erased! I'm not sure what happened, but I can't seem to get them back...I'm not that good at making websites, I guess. At least I didn't lose the performance update (above).