What Does It Look Like -- By: Bill Kraft
Copyright 2009, Makin' Hay, Inc., All Rights Reserved
Bill Kraft
Editor |
Perhaps the second most frequent question I am asked (right
after how do I find a stock) is what do I think the market is going to
do. When I answer, I want to avoid rudeness yet the simple fact is
that whatever I may think the market is going to do is completely
irrelevant at least in the sense that the market simply does not care
what I think. If I think it is going up, that doesn't mean it will go
up and if I think it will go down, it doesn't mean it will go down.
Of course, the phenomenon doesn't apply just to me. It applies across
the board. I am fascinated by how often I hear diametrically opposed
opinions from various talking heads on the TV stock market shows.
Their opinions may make for wonderful entertainment, but they should
not be relied upon as trading gospel. It is not unusual for one
prognosticator to predict a specific stock is set to move up while 15
minutes later and equally credentialed guru is adamant that it will
move in the opposite direction.
Years ago, I remember an exercise on a TV show where a
chimpanzee picked stocks against an analyst and actually did
marginally better. Is all this to say that success in trading is luck
alone? Certainly not. There are a number of principles that can lead
to success even when what we may think might happen doesn't. As an
example, take the old saw: "the trend is your friend." Anyone who
traded based upon that adage and made bearish plays since the latter
part of 2007 probably did quite well. Anyone who traded and didn't
pay attention to the market direction probably has suffered
significant losses.
I am primarily a technical trader so I rely upon what I am
seeing the market do. Part of my plan is to try to trade the
direction of the market, the sector, and/or the stock. I do not pay
as much attention to fundamentals as many investors might since I have
learned that simply because it is a good company does not necessarily
mean it is a good stock. General Electric (GE) may be a great
company, for example, but its' stock has fallen from $60 in 2000 to
under $7 in March of 2009. I don't mean to suggest that there aren't
fundamental reasons for the dive -- there are. What I mean to say is
that I can look at a chart of GE and see how it broke below major
support (what used to be a floor) back in early 2008 and signalled a
time to get out to technical traders. Could I have been wrong? Of
course, but if I followed the signal and got out I could always have
gotten back in if it broke back up through resistance (the new ceiling).
The point of the last paragraph is that traders and investors
need discipline and self-imposed discipline is very difficult withour
some device to guide us. I use lines on a chart. I don't contend
they are perfect because they aren't, but they definitely work better
than that little voice in my head that may say hold on a little
longer, it will come back.
Predicting is a highly improbable road to success in trading and
investing as so many have found out in these difficult times.
Discipline, money management, exit strategy, a trading plan, and the
acquisition of knowledge are much more likely to lead to success.
Good Trading!
Bill Kraft
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RPM International Inc. (RPM)
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Option Trader -- by Bill Kraft
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Here's a look at a trade Bill is currently working on:
SPDR Gold Shares (GLD)
GLD has maintained a trend up and I am looking at a
bullish put credit spread with an Apr expiration selling the 90 puts
and buying the 88s that looks like it could bring in 70 cents a share
on a risk of $1.30. A potential return on risk of almost 54% in about
a 40 day trade.
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:
Rohm & Haas Co. (ROH)
ROH has come off a triple bottom support and MACD has now
turned positive signaling a potential move up from here. Since the
stock closed down Friday, I will want to wait for a turn to the upside
before deciding whether to jump on board.
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:
Astoria Financial Corporation (AF)
In spite of the disfavor in which bank stocks have found
themselves, AF may be giving a sign of a reversal up. It came off a
double bottom on Friday and has a first upside target around $1.30
higher than the Friday close. As with every bullish entry in the
current market, I would not start with a large position and would
definitely want to have an exit nearby in the event of a downturn.
Good Trading!
Bill Kraft
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