Money
& Investing 
Think like a Good Trader, Do Your Homework,
and You Can Be Very Successful with Stocks
"A good professional trader’s goal is not to make money. It is to trade well. If he trades right, the money follows almost as an afterthought."
Those are the words of Alexander Elder in his well written book Trading for a Living (Wiley).
Elder goes on to say, “Successful traders keep honing their skills. For them, trying to reach their personal best is more important than making money. Winning does not elate them and losing does not deflate them. They are so focused on trading right and improving their skills that money no longer influences their emotions.”
There are many methods or systems to trade stocks. For instance, aggressive types may prefer momentum systems that go after stocks in strong up trends with powerful earnings. They may time their buying off a breakout from a basing pattern within an overall up trend.
There are those who may tend to be conservative and favor a bargain hunter’s approach. They may use a valuation method supported by good research. The bet here is that the company will turn around or improve its operations and boost profits. That will eventually be recognized by the market, and the price of the stock will move higher.
Of course, there are those traders playing the percentages, who seek quick, small gains, as well as those who try to go long-term, trying to be patient and focus on the big picture.
However, if there is one thing a good stock trader must do, it is his or her homework.
That old cliché, luck is when preparation meets opportunity, is quite true.
You want to invest, not in an emotional way, but in a way that has a predefined method. (See “Trading with the Masters” on the eSignal Learning site.) Learning to invest without emotion may take time, but it is well worth it.
One good idea is to write down all your trades and explain why you bought and why you sold. Go back and review your reasons. That way, you will be able to learn from your mistakes (and there will be mistakes). Then, you can improve your trading.
One of the basic systems I use is to buy strong stocks with good earnings on a breakout.
The way to do your “homework” for this is:
- Find companies with good profit projections. We do this with fundamental computer screens on the markets.
- Study the technical chart pattern of the stocks to find those in an up trend overall, and, then, identify those in a basing pattern.
- Study the basing pattern to find the breakout point (or price at which the stock will emerge from the base).
Then, line up these stocks in eSignal using a quote page and portfolio page. You then seek to enter if the breakout price is hit. Generally, a breakout stock with a strong earnings outlook has the potential to turn into a big winner.
One West Coast research firm found that big winning stocks (over a 12-year research period) exhibited a mean percentage increase of 78 percent in earnings for the quarter just before their big advance began. The length of the up trend on the big winners averaged 18 months, and the average appreciation during that time was 361 percent.
At the start of May, we put together our usual breakout watch list.
Two breakout plays worked great in just a few weeks. One was Crocs Inc. (CROX), a maker of footwear using closed-cell resin material, a unique style. Analysts expect the company’s profits to surge 88 percent this year to 3 dollars a share from 1.60 a year ago.
The entry point we looked for was 56.50. The stock rose quickly to 71.16 by mid-May. That is a gain of 25.95 percent.
Another good performer was Force Protection Inc. (FRPT), a maker of mine-protected vehicles for the military. The Street projects Force’s profits this year will skyrocket 160 percent to 88 cents a share from 34 cents a year ago.
FRPT’s stock had a breakout at 22.10. The stock climbed to 27 dollars in two weeks, a gain of 22 percent.
Both stocks have good chances to do well over the coming months.
Mr. Fasciocco’s articles appear at www.tickertapedigest.com. He is a contributing writer for several national publications. He is also president of Corona Investment Management.
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