Why There Are No Stock Picks and the Cup and Handle Pattern
Written on 01-10-2006 7:12 am by Craig
6 Reasons Why There Are No Stock Picks
Why are there no stock picks on this site? There are numerous reasons why I don't give out stock picks and why I rarely talk about my trades. Here are few...
1. Designed To Dazzle!
Stock picks are designed to impress people with there "ability to predict what a stock is going to do". Sorry, but I can't predict what stocks will do - so I wouldn't impress you.
When you visit these "stock picking" sites, they always tell you which ones have made enormous gains. They don't tell you about the losses.
Sorry folks, but that is disingenuous at best. Just ONE TIME I would love to go on one of these sites and see all their most recent losses in a big flashing neon red box right on the homepage!
Now that is a stock picking service that I would recommend.
2. It Makes Traders Lazy
Why would you want to learn anything about trading if I just posted stock picks all the time? Why do any kind of work whatsoever? All you would have to do is press a buy or sell button based on a stock pick.
This creates dependency and laziness. Wouldn't you rather learn to be self reliant? Sure that takes more work, but you would be much better off in the long term.
"Give a man a fish; you have fed him for today. Teach a man to fish; and you have fed him for a lifetime"
There will be no "fish giving" on this site!
3. The "Need To Be Right" Syndrome
If I posted stock picks, no doubt I would be judged by how many times I was right on a trade. Trading stocks for consistent profits has NOTHING to do with trying to be right all the time!
Trading stocks is about management - money management, trade management, and self management. You can be wrong more times that you are right and still make serious money in the market.
4. It Would Be A Waste Of Time
I could post a hundred stock picks at the end of this post. But, I may not trade any of them. I don't enter into any trades until the end of the day.
By then a lot of things can change in the market. I may decide not to trade at all or I may find something better to get into. I never know what is going to happen in the market!
5. I Wouldn't Enjoy Getting Sued
I was on a forum awhile back and there was a website owner on there saying that he was getting sued over a stock picking recommendation. I don't know what the outcome was but I don't want any part of it!
I can see someone who is new to trading stocks "going all in" on a stock pick - only to watch the stock go down and wipe out their trading account.
6. Too Much Pressure
I really want to help people learn to trade stocks. BUT, my own trading account has to come before this website! I don't want the added pressure of coming up with "good trades". If someone lost money because of one of my stock picks, I WOULD FEEL GUILTY!
And then I would develop a mindset of trying to be right all the time (see number 3).
See all the problems with giving out stock picks? It's one thing to share with other traders what stocks you think have the potential to move in a desired direction. That's what makes the internet great!
But it is quite another ball game to give out "picks" with the implication that a particular stock is going to the moon!
One Final Note:
I strongly urge you not to talk about your trades in forums, on websites, in emails, or to friends and family. Again this creates a need of "being right".
Sometimes I talk about my trades on this blog or in the forum but it is rare! The only time I do this is when I'm trying to explain something.
Trading stocks is hard enough without all these psychological pitfalls!
You are all alone. In the end, it comes down to just you and the market.
Written on 12-10-2006 6:06 pm by Craig
Fibonacci Trading For The Rest Of Us
Have you ever picked up a book on Fibonacci? You may have thought that you mistakenly picked up a book on physics. It can be very confusing!
The first thing you learn is how to calculate Fibonacci retracements. The only problem with a retracement is...
Which fib level will the stock pull back to - 38.2%, 50%, or 61.8%?
Take a look at the following chart:
The Fibonacci retracement levels wouldn't have helped you at all! The stock did not reverse at the popular fib levels. So, instead of looking at the numbers themselves, I think it is easier to create a "zone" to find reversal areas.
Now look at this chart:
We can now see clearly. I highlighted all of the fib levels and then removed the fib grid. This creates an area where a reversal may occur.
It makes sense that the stock would be more likely to reverse at that prior swing point high. You also have an inverted hammer candlestick pattern - a bullish reversal signal.
- Draw a fib grid and highlight the fib levels.
- Look to the left to identify support and resistance.
- Identify candlestick patterns to anticipate reversals.
Simple. Easy. And you didn't have learn physics.
Written on 15-10-2006 9:49 am by Craig
The Video Craze
It seems everyone is getting in on the video craze. And now that Google has acquired YouTube, I would expect this to grow even bigger.
Get your popcorn ready...
This is a video by Alpha Trends. Some pretty good trading ideas in this video.
Also, here is a link to the new video by MarketClub.
Larry (Mr.Swing) has a new video out about his SwingTracker software. He mentions that his team can create custom indicators and overlays for free.
Added: Wallstrip officially launches on 10/16. This video blog will feature guests such as Michael Seneadza, Andy Swawn and Nick Fenton, Roger Nusbaum, Brian Shannon, Dave Landry, and Michelle Leader.
(via Trader Mike)
Have a great week!
Written on 16-10-2006 7:55 am by Craig
Wallstrip Officially Launches - Apple
Wallstrip officially launched this morning! The first video is about Apple Computer (AAPL).
Here it is, hot off the press...
Here is how it works:
Lindsay features a stock. Then bloggers around the net comment on where they think the stock is headed - and why. Pretty simple really. But, I think this could be a great learning tool for many traders (including me).
"It's where stock culture meets pop culture".
I like this concept! This is one site that I will be visiting often.
(Dang! I already have a crush on Lindsay. Ummm....hope my wife doesn't see this!)
Written on 18-10-2006 5:10 pm by Craig
How NOT To Trade A Cup And Handle Pattern
The cup and handle pattern is one of the first chart patterns that I learned to trade. This pattern was popularized by William J.O'neil, founder of Investors Business Daily.
I was taught to buy the breakout above the right side of the cup (the "pivot point"), after a handle has formed.
There are two problems with this:
- Buying breakouts is hardly ever a low risk trade.
- Stocks often pullback to the breakout point.
It's hardly ever a low risk trade because of how popular the pattern is. When a stock breaks out through the "pivot point", everyone sees it. They all pile in.
Who would be left to buy after the majority has bought the stock? Who is left to push the stock higher? Not many. This can cause the stock to get weak, and pull right back to the breakout point - right where you bought it!
Then what do you do? You certainly don't want to let a winner turn into a loss, so do you sell and get out at break even? Big dilemma!
I'm not trying to imply that all cup and handle patterns fail. Some do go on to make big gains. I just would not trade this chart pattern by buying the breakout. There is an easier way.
Take a look at the following chart:
Conventional wisdom says to buy the breakout above $14.95 - the pivot point. I wouldn't do that. I would buy the pullback right in the handle, where I can get a low risk entry. If the stock breaks out...
I would then sell my shares to the breakout traders.
Yep. Buy the pullback and dump the breakout.
You can usually get a lower risk entry on the stock by buying the pullback. If the stock does indeed breakout, you've got options! You can dump all your shares, or take partial profits and trail out the rest. Then, if the patterns "fails" you at least made some money on the trade.
This is one of my favorite chart patterns - but I can't trade it like I was taught!
Written on 24-10-2006 6:51 pm by Craig
Introducing INO TV
The video craze keeps getting better and better. INO (the same folks that do InvestorFlix and MarketClub) has just released INO TV. The first video is by Mark Cook on Avoiding Trading Pitfalls:
"In this fast-paced video, trading champion Mark Cook shares his ideas for making winning trades. As the first place finisher in the options division of the U.S. Investing Championship, Mark credits research, planning and an attention to detail for his astounding 536% return."
This video is really funny and informative. Mark Cook shows up to a seminar with overalls on!
Sign up here (it's free), get your ticket, and watch the first video immediately. I'm sure this will be just the first of many to come.
Also, I should have the second video up by this week (beginning of next week at the latest!). This one will be on market timing.
Have a great week!
Written on 26-10-2006 10:56 pm by Craig
The StockCharts.Com and Firefox Magic Trick
If you are using Firefox for web browsing (and really, who wouldn't use it?), you can download this mind-blowing extension called "cooliris".
What does this extension do?
It allows you to "simply mouse over any link and the Cooliris preview window will instantly appear to show you the underlying content without leaving your current page."
This extension is really useful for StockCharts.com members because all of the charts in CandleGlance view are links! You no longer will have to click on one of these mini charts. You can just mouse over a chart in this view and a window appears showing you the chart that you have customized!
Instead of clicking on your CandleGlance charts, mouse over them. Then when you are finished looking at that chart, move your mouse off the window (it will disappear), then go on to the next chart.
You can do this without even leaving the page that you are on. Even David Blaine couldn't come up with something as uncanny as this!
Written on 29-10-2006 5:50 pm by Craig
Short Skirts and the Stock Market
Interesting video on the "hemline indicator".