stock selection

All posts tagged stock selection

Some stocks move smoothly

Posted by BMoreTrader on April 26, 2016
Posted in: Trading Beliefs. Tagged: , , , . Leave a Comment

Belief:

Some stocks move smoothly. Others gap frequently.

What this means to me:

Price action for different stocks shows different characteristics of movement.

What this belief gets me into:

Noticing the frequency and size of gaps in price movement.
Developing ways to measure and track changes in the characteristics of stock price moves.
Measuring and tracking opening gaps.
Developing trading systems that take advantage of stocks that gap.
Developing trading systems that take advantage of stocks that move smoothly.
Developing trading systems that avoid stocks that gap.
Developing trading systems that avoid stocks that move smoothly.
Believing that stock selection can impact trade returns.
Considering a belief that gaps are areas of support or resistance.
Considering a belief that gaps tend to get filled.
How does movement style relate to trend and/or volatility?

What this belief gets me out of:

Trades skipped or missed if a stock doesn’t meet the gap or smoothness qualification.
Observing that a stock that gaps frequently can keep me out of stocks that might blow past my stop.
Choosing to trade smooth stocks would keep me out of stocks that gap.
Choosing to trade gaps would keep me out of stocks that move smoothly.
All stocks move in the same way.

Limitations of this belief:

How does this belief get measured? Are those measurements accurate? How sensitive is a trading system to this belief?

Utility of this belief:

This belief provides a snapshot of how prices move and can be useful in developing both trade ideas and market selection criteria for a trading system. It urges me to be more observant of the market and develop nuances to my trading systems that could be very useful.

Conclusions:

While broad in scope, this observation about price movement will allow me to generate more refined ideas about how to trade. I expect other beliefs to flow from this foundation.

Choosing right stocks – part 2

Posted by BMoreTrader on April 25, 2016
Posted in: Trading Beliefs. Tagged: , . Leave a Comment

Belief:

Choosing the right stock is not a trading system.

What this means to me:

There are many requirements for a trading system. Stock selection is only one of them.

What this belief gets me into:

A trading system requires rules for entry, exit (for profit and loss), position sizing, and choosing a market.
Whatever the market, I will need rules for the other parts of a trading system.
If I have those other rules, does the stock even matter?
Choosing a stock is still part the system.
How do I choose a stock?
What do I need to know about the fundamentals of the business behind the stock?
What sort of price action do I look for in a stock?

What this belief gets me out of:

Claiming the result was from the stock, not the system or me.
It could get me out of paying attention to important news about a stock:
e.g. If the stock isn’t important, do I need to know about an upcoming merger?
Even having a system could keep me from looking at how I execute it.

Limitations of this belief:

Any belief that focuses only on the stock or the system and neglects the psychology of the person carrying out the trades or constructing the system is incomplete. Beliefs expressed in the negative leave open a wide territory for positive associations. If choosing a stock is not a trading system, what does it mean to choose the right stock? What does it mean to have a trading system?

Utility of this belief:

As with the previous post on choosing a stock, this is an incomplete statement. It points towards a truth that there are more criteria to success than choosing a stock, but otherwise is not very informative.

Conclusions:

This is a belief in need to further refinement. An uncarved block of potential, not to simply be discarded, but rather chiseled and cut until clarity emerges. Some of that clarity comes when statements are equivalency comparisons rather than negative exclusions.