Stock Market Articles

I am a little more forgiving on the 99-15
screen. I will often buy when it
makes this screen even after a runup
because I want to make sure I have a
position in these stocks. Another option I
use frequently is to buy half the
position when it makes the screen and half
on a pullback.

Once you have established a position, the
rules above require the stock to
continue to perform or else. This has the
effect of focusing your portfolio
in the stocks that keep going up and rise
beyond anyone’s expectations while
cutting out the pretenders before they can
hurt you too badly. It’s these few
big gainers that will have the biggest
impact on your portfolio, because in a
typical market you will more or less break
even on 1/2-3/4 of your picks as
some smaller winners will cancel out your
small losses.

When a stock that has been a strong
performer stops making new highs, bad
things can happen. What often happens at
such danger points is the stock
makes a new high on its biggest volume of
the move, pulls back on heavier
volume than previously and then makes a
weak rally attempt at a new high on
lower volume than its previous upsurges.
The rally attempt falls short and
the stock falls and undercuts its recent
lows, signaling that the move is
over.

This failed rally attempt will often come
late in the second week or early in
the third week after a new high. Before
this plays out, high momentum stocks
will routinely rise or fall 10% in a day,
so I am not a big fan of stop
losses in the first two weeks following a
new high. You have to give these
stocks a little room and time to move.
Poor use of stops can get you
whipsawed out of a lot of stocks that drop
and take out your stop before
rising again.

While I want to give my stocks enough room
to make things happen, my key
focus always has to be on preservation of
capital. That’s why I use the stop
in the third week or sell if it can’t
regain new high ground after that week
is up. The stock is now weakening to the
point where a further–and
sharper–decline becomes more likely.

Anything can happen when you buy a stock,
and you have to plan on a fair
share of your picks being losers. There
are no magic formulas that only pull
winners out of the hat, and my screens are
no different. When you buy a stock
that turns out to be a "mistake," cut it
loose with a small loss before it
can do some real damage to your portfolio.
Hoping and praying these ones will
come back is a loser’s game.

Let me say it again just to drill the
point home: no matter how good your
selection criteria is, some of your
selections will be losers, particularly
those made just before the market turns
sour. If you use selling rules to
keep your losses to a minimum, you can be
right on just half of your
selections and still do very well.

Selling to Take and Keep Profits
Because only a few strong performers will
be the key to your results, you
want to hold onto these stocks as they
long as they continue to show
progress. You may want to take profits on
a gain of 20-50% on a part of your
position in a few stocks early in a BUY
signal, but ideally you will hold a
few positions until they at least double.
As an alternative, take some
partial profits on your stronger stocks
and buy back the position after the
next four-day closing low.

Stocks which go parabolic on huge volume
spikes should also be sold. A stock
which doubles in less than two weeks after
it has already made a big move
would qualify as a parabolic stock.
 
Portfolio Size
In my opinion the ideal portfolio size is
between 5-10 stocks. Holding this
many stocks does two things. First, it
limits your exposure to the big loser
that falls 30-50% in one day on bad news.
Second, it increases your chances
of finding the two or three huge winners
that will make the big difference in
your portfolio.

Of course, if you cannot adopt a firm
money management plan that clearly
spells out the terms on which you will buy
and sell your stocks, ONE stock is
too many for you to hold.

That completes the section on Money Management
It is quite a bit to take in on first reading.
Please, please, do save and re-read this course.
Even go so far as to print it out and keep reading.
Theres’ some fantastic information here for you to
null over.

 If you have ANY questions about any specific part
of the Momentum Trading E-course then do please drop
me an e-mail with your question and we can discuss it further.

mailto:trader@stressfreetrading.com:subject="stressfreequestions"

 Part Seven, the last part of the course is a quick re-cap
of the whole course and some parting suggestions.

 I really do hope you have enjoyed and benefited from what
you have read.

 Thank you
 Mark Crisp
http://www.stressfreetrading.com