Today’s Trading Lesson From TradingMarkets

Frustrated
with the current market? Having trouble making the kind of money you
believe you should be making? Maybe it is time to go back to the beginning. Most
investors, including myself, evolve through the market in similar fashion. We
lose some money by not really knowing or understanding what we are doing, then
we eventually stumble across a strategy that we like and adopt as our own.

As we practice using that investment
strategy over the years, we learn from past mistakes and change bits and pieces
to work more efficiently. Changes over the course of one’s investment career are
one of the key traits to successful investing, but we have to be careful not to
change key elements of our core strategy. This is the reason I always go back to
the beginning and re-read the original books and manuals that allowed me to
adopt the investment strategy I practice today.

Over the past two months, stocks have
been setting up, then breaking out (sometimes on heavy volume), and then
failing. It has been more than tempting to start jumping into a position a bit
before the breakout, then selling half or all through the initial move. I first
considered this as I bought Krispy Kreme Doughnuts
(KKD)
in mid-October and watched the stock move strongly through its pivot point, only
to reverse and knock me out.

On 11/7,
I watched Taro Pharmaceuticals (TARO)
blast through its pivot point of 45.70 on very heavy volume. The
next day, the stock sold off hard.

At this point, I realized that any
stock within 15% of its breakout was eventually getting there. The only problem
was this: they were failing 90% of the time. This statistic would not allow
profitable trades unless I changed something. Just as I was gaining the
conviction through my analysis about moving into these stocks ahead of the
correct buy point to capture profits on a short-term trade of a stock that would
most likely fail to make a larger move, I found my self reading two books:

How I Made $2,000,000 In The Stock Market,
by Nicholas Darvas and

How To Make Money In Stocks by William J. O’Neil. These two books and a
couple others are the ones I first read to put me on track to pulling money out
of the market and limiting what I put back…they were my beginning.

As I read the books, I realized two
things: 1) why I decided on the investment philosophy I now follow and 2) I
cannot change how I buy into stocks, even for short-term trading profits,
because I do not wish to interrupt the larger picture and my quest for larger
profits when they become available.

Going back to the beginning, for me,
was important because I want to stay the course and not allow short-term
anomalies in the market affect me. In this specific environment, the alternative
to buying these stocks early is simple: patience. Over the past few days, I have
watched several more stocks prove that it is not quite time to buy stocks I have
chosen. Epiq Systems (EPIQ)
has struggled following its breakout through (split-adjusted) 22.06.

Resmed (RMD)
moved through its buy point on heavy volume only to post an immediate
distribution day and eventually trade below the $60 buy-point.

One of the main reasons I chose to
follow the strategy I practice is to produce returns that I expect without
taking on risk that I cannot accept. I have to always check myself against the
basics to make sure I do not change too much along the way. Little things may
change, like how much of one’s account goes into a stock, but the core traits
must be left alone in order to achieve the larger picture. 

So, I sit back and wait, and if this
is the beginning of a bull market (on average, they last for several years)
there will be plenty of opportunities over the next few weeks or months in which
to make the money I got into this game for. Opportunities such as
PEC Solutions (PECS)
will be more common.

Good Luck!