Sunday, June 03, 2007

Buying In a Market Boom

The most difficult thing in the world is to trade during market booms - yes you can day trade and be successful as long as you stay within the constraints of a few hours. But the trading community is so skitterish during market run-ups that they are ready to sell and buy (in that order) anything on just about any news.

I wrote this on stockbee awhile back (I still like that guy) and it was so simple and profound I thought I'd open the BLog and repost it here: Buying all time highs or other high mark is a sucker's play - yes every once in awhile you will make some coin (witness GOOG which traded at all time highs for several months and then, suddenly, stopped and is now just so much dead money).

But many times you will be the bag holder in a very bad trade (PNTR comes to mind immediately - put up a 1 year chart of PNTR and imagine the guy who bought at 24).

Never buy a stock unless you have two numbers in mind - both exits - one above the price you paid and one below. If you hold above the upper number be ready to dump if it retraces to your target and never hold below your lower number.

If you follow that simple approach you can buy any stock at any price at any time. Remember learning how to trade is learning how to lose - anybody can learn how to win - it's the losing that is troublesome.

If you adhere to that last paragraph and just apply some selection discipline you can make money in any kind of market - up or down.

Stockbee has a number of methods that he uses to buy stocks that have retraced some from their all time highs. This is known as buying stocks in the Trader's Action Zone (TAZ) which is highlighted on Taz Trader's site where you can also pick up some great tips for trading. Both of these sites are on my link list.

Come back about once a week because I'm working on a method whereby wage slaves such as myself can still short-term trade with only one or two visits to the market every day. Eventually I'll get it and I will publish it here.


Bullish Jim said...

Great post, wage slave. It's good to hear from you.

I can't wait to hear what you come up with for us working stiffs to short term trade. My job is getting busier by the day and I may have no choice but to limit my trading significantly. I dream of having a system where I run some stock fetcher screens at 3:45 and buy a few stocks and thensell my weakest stocks at 3:58 and be done with it. Homework would be nights and weekends, of course.

Anonymous said...

Great to hear from you again. Really miss your informative reads.

JohnDiddler said...

please retain your oracle status by throwing us some thoughts now and then

IIO said...

Looking forward to your analysis. The main reason I was never very successful as daytrading was I could never harmonize my office job with the requirements I thought that trading demanded.

Woodshedder said...

Marlyn- looking forward to your wage slave system.

I posted over at my blog some backtesting stuff about BobV32x. I would appreciate any comments you might have on the results.

Chris Perruna said...

Funny how you attacked my blog about all-time highs but didn't take the time to see that I buy stocks within 15% of all-time highs and more so, stocks that made a new high but are now catching support at the 200-d m.a.

It's just funny how some people finally come around when they take the time to understand what someone else is doing.

Marlyn Trades said...

Chris, are you happy now? Good - glad to be of service.

I still contend that every single stock today that is above the 200 day moving average was, at one time, below the 200 day moving average and at that point in time some traders - (the ones I call "smart") bought them - elsewise they wouldn't be above the 200 day moving average today - savvy?

And the traders who buy above the 200 day moving average? - I call them "late" whether they are "TAZ" traders or not.

But stay happy - you can't make coin if you have a frown on your face.

Chris said...

I will counter and say that "not every stock was below the 200-d m.a. before getting above it". I invest in stock within 5 years of an IPO and many of them have never traded below the 200-d m.a. In other cases, you are correct.

I respect what you do - I just didn't enjoy the initial attack without reading further. I do have a smile on my face!!! :)


The market will boom and than go bust.

Christopher Ignatius said...

Hey Bullish Jim , do you still have your blog open. Can you invite me please so i can be able to read it . Thank you.