Tuesday, October 17, 2006

People I know...Stocks I trade...

[This post relates to BULL market strategies ONLY]

Well, not really, since trading is not about who we know, but about who we are,
so the title of this post starts and stops that useless for us subject.

Sinsecato ( one of the Trade Guild blog TagBoard's gifted crowd) asked me what I am looking for in the stocks I trade.
Hmm.. sounds almost like: "Stocks I know..."

Credits don't go to me, I just adopted and practicing what proved to be safe/profitable way for me to trade.
Those of you familiar with W. O'Neal founder of IBD will know where my preferences came from, at least partially

First off I look for the stocks not "everybody" knows about. Why?
Keep in mind that I'm not talking about day trading, the subject is short to intermediate term trades.

On a day like today, down day in case you did not notice, most "crowd favorites" getting hit hard, first it starts, as CNBC and other Yahoos call it, orderly "profit taking" which quite fast turns into disorderly, so to say "panicky" act of "cutting losses" by people who found out about this stock after millions of other traders and never made a dime on it, so the process escalates very fast ( I'd love to be short that stock ).
I hate to be "last in first out" type of a guy, so I try to stay away from crowd favorites, "First In First Out" is the way I wish it worked for me with many happy returns.

Let say I found 50 candidates, charts look good, volume, indicator, overall market and such ( Mostly using different scans, less often - articles I'm reading)

1. Float
should be below 30 millions, if it is 200 m - shares are very diluted, stock split many time, there is no crack, pardon me - no grows. Of course, some like to "trade" GE. It takes A LOT of money to move the price of such stock.
Example? SIRI - everybody loved it, now what? Everybody loves it so much to sit on the dead money for months, years? Not really, still millions of "investors" have it in 401Ks 'cause "their broker [friend | boss | dog] told them so". Good luck to them too.

2. Institutional holdings
I like to see from 5% to no more then 40%.
The reason - with too large of % if anything happens they will dump fast, at once, and ask questions later. Not really flattering if my middle name would be "bagholder" ( Some use word "investor" - investing IS good, but not when you are holding the bag)

3. Short interest
very helpful for price moves, especially if "days to cover" > 5-7 TZOO - yeah, you remember
Plus it tells you that stock already has ennemies - it takes some price moves, flatliner sitting in the same price range for years normally don't have too much of short interest.

4. History
I like to see if not great earnings grows story, than at least decent, I've been caught in overhyped stocks before, thank you - I'll pass this time around. Of course, there are some emerging sectors where there is no history of earnings - exceptions make the rule. BTW, IBD is really helpful to do a quick spot check on earnings history.

5. Volume
at least 80K over 30 days average volume, I'm not afraid of thinly traded stocks (Use money management always), as a matter of fact - I'd rather be in 300K volume than in 4Mils. Like they say: "There never is enough volume when you need to sell fast"

To conclude I'll use similarity between trading and gambling. ( I play BlackJack when I need to replenish my funds depleted by trading )
The way to win is to take chances when opportunity present itself and find it way before the crowd, cream is gooood, mmm...
The way to not to lose is to minimize chances for losses and not to look for opportunity where there is no such.


P.S. Allusions used in this post have nothing to do with some Trade Guild blog TagBoard's members with good SOH, well, you know who...
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