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Trading Training: The hard working fool

Tyler Bollhorn
0 Comments|August 18, 2014

Commentary

In This Week’s Issue:

 

  • Live Trading Daily Webinar

  • Stockscores’ Market Minutes Video – Perceptions Rule

  • Stockscores Trader Training – The Hard Working Fool

  • Stock Features of the Week – Boring Market, Boring Yield

 

Live Trading Webinar

The Stockscores Live Trading webinar series will start up again in September. Watch Tyler’s trading screen with his current open positions and receive live trade alerts when he makes a day or swing trade. Send an email to tylerb@stockscores.com with Live Trading in the subject line to be put on the list to receive information, pricing and registration details (email details will be sent out later in August. This service is limited to 40 participants).

 

Stockscores Market Minutes Video

Good fundamentals often don't get the valuation that investors expect because it is perceptions that matter more than fundamentals. Learn more in this week's video:

 

http://youtu.be/1RKXfh4O5I0

 

The Hard Working Fool

It's better to miss a good trade than to take a bad one. Missing a good trade doesn't deplete your capital-it only fails to add to it. A bad trade will not only reduce the size of your trading account, it will eat up emotional capital and your confidence. A losing trade is not a bad trade, it is one that doesn't meet your requirements. Bad trades come from working hard to see something that's not there, guided by your need to trade rather than the market offering a good opportunity.

 

I have read very few books about the stock market, but one that I've read more than once and that I think is a must-read for every investor is Reminiscences of a Stock Operator by Edwin Lefevre. Here is a wonderful quote from that book that captures the essence of what this chapter is about:

 

What beat me was not having brains enough to stick to my own game-that is, to play the market only when I was satisfied that precedents favored my play. There is the plain fool, who does the wrong thing at all times everywhere, but there is also the Wall Street fool, who thinks he must trade all the time. No man can have adequate reasons for buying or selling stocks daily-or sufficient knowledge to make his play an intelligent play.

-Reminiscences of a Stock Operator

 

I advise all my students that they will make more money by trading less, at least so long as trading less is the result of having a high standard for what they trade. If you tell yourself you're limited to only making 20 trades a year, you're probably going to be very fussy about what trades you take. With less than two trades to be made each month, only the very best opportunities will pass your analysis. All of the "maybes" or "pretty goods" will get thrown out.

 

We take the pretty good trades because we're afraid of missing out. It's painful to watch a stock you considered buying but passed on go up. You remember this pain and the next time you see something that looks pretty good, you take it with little regard for the expected value of trading pretty good opportunities. Pretty good means the trade will make money some of the time and lose some of the time, and the average over a large number of trades may be close to breaking even. The fact that one pretty good trade did well is reasonable and expected. In the context of expected value, taking those pretty good trades many times will lead to less than stellar results when the losers offset the winners.

 

You shouldn't judge your trading success one trade at a time. You must look at your results over a large number of trades. To maximize overall profitability requires you to have a high standard for what trades you make. Maintaining that standard will be easier if you take the trades that stand out as an ideal fit to your strategy, not by taking those that are marginal and require a lot of hard work to uncover.

 

Features

With a couple of weeks left in the summer of 2014, we are nearing the start of a normalized stock market. The number of trading opportunities rises with an increase in trading volumes, ending the most boring of trading periods.

 

Since the market is still pretty boring, I thought I would highlight some boring stocks that pay good dividends and have charts that indicate they are more likely to go higher than lower. These are worth considering for the investor who appreciates the benefits of boring – steady income and lower price volatility.

 

T.AQN (Stock Forum) has made a strong break higher over the past few days, making a nice breakout to new highs and through long standing resistance. The historical yield is about 4%, consider this one on a pull back. Support at $8.15.

 

 

T.LW (Stock Forum) shows a similar chart with a break to new highs after a brief pause at resistance. Historical yield of 6.9%, I like it better on a pull back as the run up over the past few days has been pretty strong.


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