Ride the Winners, Sell the Losers
Monday, May 5th, 2008
By George Leong, B.Comm. for Profit Confidential
Heading into May, stock markets continue to trade on major news. It is a market that is difficult to trade, but having said that, there are good opportunities to buy on market dips and profit from a subsequent bounce. In technical terms, when stocks sell off for a period of time, they hit what we call an oversold condition. When a period of selling happens or if stock plummets after news, as a trader, you want to watch for the selling overhand to dissipate and then buy on weakness.
This strategy of buying on major declines does not always pan out, but as long as you ride out the winners and sell the losers, you should have good success. This is a strategy that I use. Each morning, I scan the market data searching for stocks that have been sold off. I evaluate the stock and, as long as I do not see a major shift or deterioration in fundamentals, I place the stock on my radar and decide on whether to place a buy order at a limit price that I want. Be extra careful on thinly traded stocks where the bid-ask spread could be large.
The key to trading, especially in the type of market we are in, is to minimize losses and capitalize on the winners. If you do this, the key to success is to closely monitor your positions and make sure you are always on top of the situation. Take the emotion out of trading by using a mechanical selling system in which you set a sell order on the downside at a predetermined price. This will help protect against major downside losses, albeit it sometimes fails. When stocks move higher, you should adjust your stop higher. When you record major gains, take some profits off the table. Remember the key is capital preservation, so you can always have funds to trade.
Next Post: A Great Summer for Gold Stock Cherry PickingPrevious Post: The One Thing Equity Investors Are Good at
Tweet
Sign Up for PROFIT CONFIDENTIAL and
receive a FREE copy of our exclusive report:
"A GOLDEN OPPORTUNITY FOR STOCK MARKET INVESTORS"
We respect your privacy and
will never share your e-mail address.
George is a Senior Editor at Lombardi Financial, and has been involved in analyzing the stock markets for two decades where he employs both fundamental and technical analysis. His overall market timing and trading knowledge is extensive in the areas of small-cap research and option trading. George is the editor of several of Lombardi’s popular financial newsletters, including The China Letter, Special Situations, and Obscene Profits, among others. His trading advice on stocks and options is also found on his daily trading site, Daily Profits. He has written technical and fundamental columns for numerous stock market news web sites, and he is the author of Quick Wealth Options Strategy and Mastering 7 Proven Options Strategies. Prior to starting with Lombardi Financial, George was employed as a financial analyst with Globe Information Services.
