More Market Sayings -- By: Bill Kraft
Copyright 2008, Makin' Hay, Inc., All Rights Reserved
Bill Kraft
Editor |
Last weekend I wrote about some market cliches so we could think
about their efficacy. While these sayings have become conventional
wisdom, the real question for us as traders and investors is are they
complete and do they work; do they produce the intended result? This
week, I would like to examine a couple more with the same objective in
mind. One of my favorites is: "You can't go broke makin' a profit." I
always say that to myself after I have gotten out of a position only to
see it take off after I exited.
"You can't go broke makin' a profit" is only true if our profits
are greater than our losses. The problem with the concept is that it
doesn't recognize the importance of letting profits run. No doubt it is
better to take profit than suffer a loss, but the real key is when to
take the profit. Should we pull the plug and exit a play as soon as it
turns profitable? Once there is a profit, what should we do to avoid
letting it turn into a loss? How long or far should we let the profit
run before we close out? Again, as we examine the statement, it can
result in the formation of an exit strategy. It seems to me that we can
follow the direction of the cliche by recognizing the importance of
keeping a profit so we might want to trail a stop once our position is
in the profit column or we may set an exit based on the crossing of a
moving average or maybe follow Japanese candlesticks, but whatever we
choose, we need to have a strategy first to preserve the profit and
second to let it run or at least try to avoid exiting too early.
Another well-known market saying is: "buy on the rumor, sell on
the news." I think this one is pretty valuable with minor
modification. Buying on the rumor probably works pretty well as long as
we hear the rumor and hear it fairly early in the game. Hearing the rumor
shortly before the news comes out may not work so well. The theory
behind the saying is that the rumor generates excitement and excitement
causes movement in the price of the stock. Generally, once the news
comes out, the excitement is over. There is no more anticipation because
we now have the information; we know the news. Once that happens, the
run-up is often over as well and we may see a downturn. I suspect the
better saying is: "buy on the rumor if you believe there is a
reasonable time before the news comes out and sell right before the
news is announced". That pre-supposes we know when the news is going to
be announced. In some cases, we may know when the news will be
announced, in others, it can only be a guess. In either event, once
again, we should have our exit strategy in place before we buy.
Is the trend really your friend and do you earn on the turn?
If you're not sick of these cliches by now, we may take a look at those
two down the road.
Thank you to the many of you who have bought my book, "Trade Your Way to Wealth" . I appreciate your kind comments on the book and
genuinely hope it advances your trading knowledge and helps you become
an even better trader and investor.
Good Trading!
Bill Kraft
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Here's a look at a trade Bill is currently working on:
Excel Maritime Carriers, Ltd. (EXM)
This stock has made a significant jump after breaking
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calls about 6 months out.
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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:
US Shipping Partners LP (USS)
Trend Trader closed an 11 day trade in USS for a 7% gain.
While not bad for less than 2 weeks, USS looks like it may provide
additional opportunities in the not too distant future.
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:
Alesco Financial Inc. (AFN)
I already own some shares of this REIT that has been in
disfavor but which has been paying a very strong dividend (near the
30% per year range at current prices). The stock appears to be
gaining strength at this point and with a $1 a year dividend history,
certainly looks attractive as an income producer.
Good Trading!
Bill Kraft
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