Trading Lesson of the Week

Check back weekly for another free trading lesson:

Here are 7 Reasons to Say No to the Trade

In This Week’s Issue:

  • Money Talks World Outlook Videos
  • Stockscores’ Market Minutes Video – The Coffee Shop Indicator
  • Stockscores Trader Training – Here are Seven Reasons to Say No to the Trade
  • Stock Features of the Week – Fear Risen

MoneyTalks World Outlook Videos

This past weekend Michael Campbell’s 2018 World Outlook Financial Conference gave individual investors the opportunity to hear predictions, recommendations and insights from some of my favourite analysts – and you can see them right now in the complete HD online video archive.

Want to know where the US and Canadian dollars are going? Interested in a killer portfolio of small cap stocks? How about technology plays? Gold? Oil and gas? Real Estate? Interest rates? It’s all there.

And to top it off our StockScores subscribers get a special discount. Click on the link below and find the discount code that will save you 20%. You get unlimited access to these videos, to watch anytime on any device.

Click here to learn more

Stockscores Market Minutes – The Coffee Shop Indicator

If people that don't know a lot about trading are giving you tips, it is probably time to short whatever they are promoting. Pay attention to what you hear people talking about at the local coffee shop. My weekly market analysis and the trade of the week on SWKS.

Click here to view

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Trader Training – Here are 7 Reasons to Say No to the Trade

As investors, our natural inclination is to seek out stocks that have good qualities. We look for reasons to buy the stocks we are considering and often forget to look for the negatives. Since there are thousands of stocks to consider and almost all of them can have some reason for buying them, it may be better to reverse how we approach the analysis of stocks. Looking for reasons not to buy a stock will emphasize a higher standard for the stocks you do buy and will help to improve your overall market performance.

Here is a list of common reasons I use to throw a stock out of consideration:

Too Much Volatility

Volatility is uncertainty. Virtually every good chart pattern that I use to find winners demonstrates a break out from low volatility. The narrower the range before the breakout, the more important the breakout becomes. If the stock's price is moving all over the place before it makes a break through resistance then there is a much greater chance that the breakout is false and will likely fall back. Ignore stocks that have a lot of price volatility before the break out.

Not Enough Reward for the Risk

A stock can go two ways, up or down, after you buy it. If the upside potential is not enough to justify the downside risk, then you should ignore the opportunity. I like stocks to have at least double the upside potential for the downside risk. That way, you don't have to be right even half of the time to make money, provided you are disciplined of course.

Lack of Optimism

Fundamentals do not matter. It is the perception of Fundamentals that matter. If investors are not showing some optimism about a company's prospects then it is likely that they are not paying any attention to the company's fundamentals. Look for rising bottoms on the chart as an indication that investors are optimistic, if there aren't any, leave the stock alone.

No Abnormal Behavior

The stock market is efficient most of the time. That means that you can not expect to consistently beat the stock market because all available information is priced in to the stock and your success at predicting new information can only be random. To beat the market, we have to look for break downs in market efficiency. I find that the best way to do this is look for abnormal behavior in the trading of a stock because it implies that there is significant new information playing a role in the stock's performance. I don't consider any stock that lacks abnormal behavior in its recent trading.

Too Far Up

The higher a stock goes, the riskier it becomes. I don't like to chase stocks higher. If I look at a 6 month chart of a stock and it has made more than two steps up, I don't consider it. A one day run of substantial gains is not a concern; I want to ignore stocks that have been in upward trends for some time. Look for stocks that are breaking from periods of sideways trading, not up trends.

Lack of Liquidity

The more often a stock trades, the easier it is to get in and out of it. Stocks that are not actively traded tend to have wider spreads between their bids and asks and it can be difficult to move in and out of the stock. Don't consider stocks that don't trade every day and they should trade at least 50 times a day but more is better.

Mixed Messages

I always try to look at a stock's chart on more than one time frame. If the message is not the same on both charts, I leave them alone. When day trading, look at the daily and intraday charts. When position trading, look at the daily and weekly charts.

Any time you think a stock has great potential, give this list a look and see if any of these factors show up. If so, it may be a good idea to move on and look for something else.

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