How To Find New Stocks To Trade
For Traders: A Time for
Patience…Or A New Stock?
The contraction in volatility in an already quiet
market has sent the frustration levels of most traders to new levels. The
age-old question always comes to each traders mind: Should I go on a quest for
a new stock? Or shall I just weather the storm?
While my argument is that staying the course is
always the best action there is that point at which you cannot ignore the fact
that the stock you have been trading is simply dead or out of synch with your
lead indicators. Typically I need to see my stock acting like this for 4-5 days
straight before I get concerned. One or two days does not make a trend.
However, I am beginning to sense it is time for me to find a new stock. I have
beaten up NEM pretty well over the last few
months; his responsiveness to the moves in the dollar and the price of gold were
solid but now those relationships simply do not exist. It may very well have to
do with the overall market being quiet, but as I said earlier, I am never
adverse to looking elsewhere.
The problem at present is that there are few
sectors showing any consistent movement. This leads to the inevitable question:
“Are you going to be trader
who is always scanning, or are you going to lay low until things start coming
together?”
I have always had a hard time with the the
former. My edge has come from getting to the price action of a stock and the
specialist. For me, that is where my conviction lies; others may not need that
same level of intimacy in order to gain an edge. Different strokes for
different folks. So for now do not make any rash judgments; most traders are
feeling the pinch, not just you.
If you do have the need to seek
out other stocks, I often get asked, “How do you do it? Well, it is
pretty straight-forward, although the decision ultimately boils down to which
stocks you feel comfortable with. The most basic questions are:
– Which sector is showing some good intra-day
range lately?
– Is a stock in that sector correlated with the
sector or the S&P futures?
– Is there adequate range and liquidity in the
stock?
Finding a stock is based on whether or
not it correlates well with a leading indicator…period.
The other aspects that many traders use are secondary by a long shot, but they
are icing on the cake. These include technical levels from higher time frames
etc.
^next^
FX
Hang on folks, we are talking fundamentals here.
Yes, they are relevant in FX. While flipping through my FX charts on Monday,
one thing stood out, the British Pound (GBP) and the Aussie Dollar
(AUD) barely flinched relative to the other currencies after the G7 meeting
(pull up a 60-minute and daily chart to see). My first thought was, “These
are the ones I will stalk on any further weakness in the dollar.” It was
not long before I was long the GBP, Monday
afternoon in fact (1.8605). When all was said and done I had pocketed 42 and
125 pips on both legs of my trade. Technically the trade was sound and met all
my criteria, however I also had one other story that lent me a good deal of
conviction.
There is little doubt that England relative to
the US is not only a stronger economy, but has a far better interest rate,
making the currency doubly attractive. Consider this:
“While Sterling’s rise is not
fully supported from a Broad Balance of Payments standpoint, the strength of the
UK economy, the tightening bias to monetary policy and the “protection” for
Sterling from the G7 statement all suggest that the Pound could head further
into overvalued territory. The G7 statement, and subsequent comments have made
the markets more nervous about position taking in both the Yen and Euro, leaving
the Pound as one of the obvious routes to express a negative Dollar stance.”
Source: Goldman Sachs
Yes, the charts will always provide an edge,
however, a story in the background, for me at least, adds that extra layer of
conviction needed to fully capitalize. (I am long the GBP again from Tuesday at
1.8705)
As always, I welcome your
comments and questions. If you would like to have your email address added to
my FX Mailing List for actual trade recommendations ahead of my FX
Service through TM in mid-February; simply send me your name and
email address to: aspendave@yahoo.com.
Dave