Wednesday, January 18, 2012

The chosen ones

Our readers know that we like to find big spots on our favorite stocks and then focus on them until they break-out.   The longer they’re on the newsletter often the better the trade.  Why?  Because we have watched the stocks for sometimes weeks and know their behavior very well.  When the break-out day comes and we see the action/volume fall into place our conviction is strong.  And once you get the basics down (strategy, risk management, etc) what’s left, at least for our type of trading, is all about conviction.
Two recent examples from 2012.    We saw $POT  44 in early January and wanted that break-out.   It was highlighted in our newsletter on Jan 4, 5, 7, 9, 11  until it finally broke out on the 13th.

 The same happened finally with $AMZN today which had been highlighted as 185 breakout in newsletters sent out on Jan  7, 9, 11, 15, 17 with a 5 point break-out today.

Every trading style is different but for us it pays to watch the big spots like hounds, learn the stock’s behavior, and then hit it hard when the big day arrives.      The disadvantage to this method is that there are fewer opportunities compared to strategies that constantly scan for volume, moves, etc, but the advantage is that the win rate (which in turn helps one’s confidence) is relatively high compared to other strategies.
It’s common wisdom that a trader’s strategy should synch with his personality — we’d rather trade less (relative to day-traders that is) and be right most of the time than trade more and be wrong most of the time, even if the PnL is equal.  Why?   Over the years it’s what has evolved naturally for our type of trading due to our desired levels of confidence, stress-level, and quality of life.