Sunday, November 06, 2005

Watch list for 11-7-05

No compelling bases were reported by my market homework software this weekend. There is a good reason for it though. At this point in the rally, the strongest stocks have already responded to the market strength and began making new 52 week highs again, but my software is only scanning for bases. So here are the best of the laggards that haven't broken out yet but are worth watching:

I should mention that I'm carrying a position in LKQX.

And so that people don't accuse me of only talking about winning trades, I got long a small position in XWG on Thursday at $10. It closed Thursday at $10.90, a 9% gain on the first day. But management decided to blow out the stock in the conference call that night and the stock opened at $6.70. I got out at as quickly as I could assess the situation, and filled at $6.50 for a 35% loss in one day. This loss wiped out much of my gains from trading XWG earlier in the year. So where did I go wrong with my XWG play? The reason I bought it was because XWG's chart was decent from a technical analysis of price and volume perspective, and I wanted to be long stocks because the nasdaq has been strong in the short-term and probably will remain so for the intermediate term. It was a small part of a much larger basket of stocks I bought last week. XWG was an example where fundamental analysis might have prevented the loss and maybe even profited from the price drop. But that doesn't change the fact that losses are inevitable, and having a plan for dealing with them before they happen is vital.

It is also important to remain emotionally and psychologically stable at all times as a trader. One of the exercises I do is to pretend that I have a crushing loss like this one, only across many positions that I have all at once, and imagine what my equity will look like so that it isn't such a shock if it actually happens. Then I mentally rehearse assessing the situation and doing what I need to do to exit the positions in such a way as to minimize the damage. The most important part is cutting my risk exposure as quickly as possible so as to contain the damage. I know from experience that if I can live to fight another day, I can make back any amount of lost money, but experience also tells me that I need to take my time about it.


At 8:15 PM, Blogger D TradeIdeas said...

Interesting scan for the laggards. Here's another approach (entirely technical) 8 day + Consolidation (rolling 40 day history)

Also here's our take on LKQX

Nice site. Thanks.


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