Stock Online TraderBulls & Bears Make Money, Pigs Get Slaughtered…Let Us Not Be That Pig…

Got a nice educational email from one of the newsletters I subscribed to.  Lists few good rules all traders should follow (however in reality most traders end up breaking)

Getting In
Always use limit orders when getting into a stock- Pick an entry price and stick with it.
Don’t chase stocks. There will always be another trade right around the corner. Don’t beat yourself up if you miss one. The last thing you want to do is over pay because you see a stock moving and think you are missing the boat.
Never use market orders to enter into a trade- Using market orders allows the market maker to fill you at whatever price they like and leaves you vulnerable to getting poor fills

Watch the open
Watching the open is very important. You can learn a lot about how a stock may act in the first 10-15 minutes after you get in. The first thing I look for is lots of selling. If you are watching a stock that has an average daily volume of 50,000 shares and the stock trades 250,000 shares in the first ten minutes and it isn’t moving this is not a good sign. It means there are large sell orders and they are probably only going to get more aggressive as the day goes on. If you see the stock tick up on a regular basis as you see buys on the offer this is a good sign. If you are in the stock and you see lots of buying and it’s not moving GET OUT. Don’t wait.

Limit Your Risk
When you enter a trade you need to determine how much you are willing to risk. Have a firm number and get out if the trade goes against you. Every big loss started as a small loss where the investor lost control of their emotions and didn’t close out the trade. When you’re an investor you are going to have trades that go against you. It happens to everyone. Successful traders know how to limit losses while unsuccessful ones do not. They begin to hope and pray that the stock will turn around so they don’t lose money and next thing they know a small 10% loss is now a 40% loss. At this point they begin to think the stock cannot go any lower and they hang on. Now it’s a 90% loss and they finally sell. Do not let this be you. Put a line in the sand in every trade you do. When it gets over that line, get out.

Selling on the way up
When entering a new trade determine beforehand where you want to get out when the stock goes up. It helps to put in a sell limit order in at the same time you buy the stock. Then when the stock hits this price you are taken out and don’t have to struggle with wondering if it’s going to keep going higher. Book your profits.
Get used to booking profits no matter how small. It may help to learn to take small profits when you begin. There is nothing wrong with taking 10%, 15%, or 20% profits on trades. This gets you in a winning state of mind and makes taking profits much more of a habit. You do not need to buy at every low and sell at every high in order to make a lot of money in the market. You just need to be consistent

Trailing Stops
While you can’t really place stop losses on OTC stocks you should always use mental stops. This means that when the stock hits a price while moving lower it’s your time to get out. For example if you get into a stock at .10 cents and it runs up to .20 cents you want to protect your profits. Some people will decide to get out completely and that’s smart but some of you may want to stay in the trade to see if it goes higher. The best way to do this is to use a mental trailing stop. In my example your stop may be .18 cents which means if the stock comes down off .20 cents and gets to .18 cents its time to get out. This protects your profits. A mistake that many traders make is allowing a very profitable trade to turn into a breakeven or even losing trade. Don’t let this happen to you. Use trailing stops. If the stock continues to move up you move you trailing stop up with it to continue to protect profits as you go.

Market order Sells
I know this is going to go against some other trading tips you may have read but here goes. When getting out of a stock where the momentum has changed and it’s headed lower use market order sells or put the limit well below the current market. Here is why I say that; if you are in a fast moving market and you use limit order at the bid, the stock may go lower before your order is in the hands of the market maker. Then you have to go back and put in another order. Maybe the same things happens a few times and by the time you are out, the stock could be quite a bit lower than you would have got if you just put in a market sell order or if you put in a limit well below the current market
If the price of a stock falls below the price I send an alert out on it, GET OUT. This is not a good sign at all.” Sometimes the stock will come back but most of the time it will not. In the OTC market sometimes you just need to get out. When it’s time it’s time. Bail! Often times in the OTC when a stock does crack and wants to head lower it can be like a race to the exit. You want every advantage to get out as soon as you can.

Source: WhisperfromWallStreet.com

Does your chance of making winning trades increases by watching more stocks ?

After years of trading I have realized that watching too many stocks actually hurts your chances of making a good trade. This is because you cannot devote enough time or research to the stocks you plan to trade. By breaking the huge set into smaller selective ones, your odds of winning increases. This helps you keep track of resistance/support, volume & any related news about those selective stocks.

Having a smaller set also helps you plan your trade before the market opens. You can plan entry/exit points based on price action.

I know traders that scan/watch 30-50 stocks per day. Not sure how they do it,  and how can they have a plan for each of them ?

I follow 10-12 stocks per day as my watchlist. By confining myself to a smaller set, I can give them my undivided attention. I can plan entry/exit/stop loss prior to market open. The stocks that do not make it to the watchlist, but still look attractive go to my alert manager. By setting alerts for them, I will look into them if certain price action occurs for those stocks.

This makes my trading less chaotic and predictable and provides the discipline every trader needs.

On Friday I played J. Crew Group, Inc. (JCG) on the long side. J.Crew Group is an apparel and accessories brand that embraces a standard of style, craftsmanship, quality and customer service. JCG reported first quarter earnings of $0.48 per share, $0.01 better than the First Call consensus estimate. Revenues rose 14.6% year/year to $340.6 million versus the $334.6 million consensus view.

The problem for JCG and its stock on friday, however, was the company’s guidance for the second quarter and full year, which is well below analysts’ expectations. JCG sees second quarter earnings per share of $0.31 to $0.33 (consensus $0.40) and FY08 earnings per share of $1.70 to $1.75 (consensus $1.86). The company also revised expectations for fiscal 2008 comparable store sales growth, which it now expects in the range of flat to low single-digits. JCG shares tumbled more than 20% on this news.

At one point it was down to 36.61 (approx 22% down) which I felt like overdone in terms of selling for one trading day. I decided to take a plunge on the long side for a quick trade. JCG quickly recovered back from the low of the day and found support around 37 level. This is where i decided to make an entry with stop loss below 36.90 if it cracked the 37 level support. Not confident of the long side trade i put a sell limit of 20 cent gain. This made my risk reward ratio of 2:1 (Either lose $x or make $2x). In matter of few minutes my sell limit got executed on the winning side bagging $200 in gain. However thats when JCG started climbing and it reached all the way to $38.63 (potential $1600 profit) before it dropped back. I can’t complain because I exited the trade on the winning side. However i did not let my profits run. Ofcourse it is easy to say such things after it happens. It could have tanked from my exit point…who knows ??

The important lesson to learn is make use of trailing stops effectively. This way your loss is limited and profits can run. Easier said than done…..