Articles by Dr. Winton M. Felt on ArticleSnatch.com

Where to Put a Stop Loss

Sat, 25 Jul 2009 11:16:23 -0400

It is virtually a "law" of trading in the stock market that wherever you place your stop loss, it will occasionally be triggered by a stock just before it resumes its climb to higher levels. That is just something to be expected if you use any stop-loss. Unfortunately, not using a stop-loss is asking for trouble of a much greater magnitude, and the market loves to reward the foolish, lazy, or stupid, with the just recompense of their behavior. It makes no difference if you set the stop at 10% or at 3% from the low, high, or close. You can use stops that are volatility-based, use Fibonacci retracement ratios, Gann analysis, pivot points, percentage declines, or any other approach. No matter how sophisticated your mathematics is, you will often find you have sold for no good reason other than the occurrence of a temporary price spike that was just sufficient to trigger a stop loss -- your stop loss. Learn to live with it On the other hand, you can control risk and have some say about the probable frequency with which you will be ejected from a position because of such a spike. **End Summary** Topics: Stop loss]]> Fibonacci]]> Gann]]> pivot points]]> percentage decline]]>]]> About the Author: ]]> Dr. Winton Felt has market reviews, stock alerts, strongest ETFs ranked at http://www.stockdisciplines.com Information on Stop losses including volatility stop losses, videos at http://www.stockdisciplines.com/stop-losses Stock alerts, pre-surge "setups," videos at http://www.stockdisciplines.com/stock-alerts

Select Stocks by Combining Technical and Fundamental Screens

Mon, 29 Jun 2009 00:00:00 -0400

Short-term traders tend to concentrate on technical chart patterns, and long-term investors tend to pay much more attention to the fundamentals of the company. However, both types of market participant should use a combination of the two approaches for better timing and greater returns. The technical setup pattern can give some assurance that an upward move is likely soon. One or more good fundamental measurements can give some assurance that if the stock does start to rise to a higher price, its ascent is likely to be a trend of significance. Before we look at the stock selection method, a brief note about the relative merits of fundamental and technical analysis might enhance the understanding of some readers. Fundamental considerations are most important for long-term holders of a stock. A stock may gain 10% or more over a one-year period. That move will likely be driven by the fundamentals of the company. However, as holding periods shorten, there tends to be more randomness (noise) in stock behavior. The short-term forces at work in the environment (wars breaking out abroad, indictments, terrorist threats, Fed meetings and decisions, etc.) cause investors to be concerned about one thing and then another. **End Summary** Topics: Select stocks]]> technical]]> stock chart patterns]]> fundamental]]>]]> About the Author: ]]> Dr. Winton Felt has market reviews, stock alerts, free tutorials at http://www.stockdisciplines.com Information on Stop losses including volatility stop losses, videos at http://www.stockdisciplines.com/stop-losses Stock Scanner intro at http://www.stockdisciplines.com/stock-scanner

Be Both a Short-Term Trader and a Long-Term Investor

Sun, 14 Jun 2009 00:00:00 -0400

Do short-term traders assume more risk or less risk than long-term investors? Does selling quickly when an overpriced stock breaks down make a person a trader? If so, is that a bad thing? If you read between the lines in the financial press, you will find that it is the "traders" who profit from short swings in the market and from market volatility. Note how often it is that when there is a significant market surge, the announcement is made that "traders snapped up oversold stocks today and the market surged" or "traders sold to take profits from the recent market rise." The real issue should not be whether a person is a trader or investor. It should be whether or not his enterprise is making money. Some in the industry do treat the term "trader" as if it represented something evil. Why? Though they have concocted a rationale for a pejorative treatment of the word, it seems to come down to money and the naysayer's fear of losing it. For example, the mutual fund industry has tried to indoctrinate investors to believe they should always "invest for the long term. **End Summary** Topics: Short-term]]> traders]]> more risk]]> less risk]]> long-term]]> invest]]>]]> About the Author: ]]> Dr. Winton Felt has market reviews, stock alerts, free tutorials at http://www.stockdisciplines.com Information on Stop losses including volatility stop losses, videos at http://www.stockdisciplines.com/stop-losses Stock Scanner intro at http://www.stockdisciplines.com/stock-scanner

Short-Term Stock Trends and Risk Control

Mon, 01 Jun 2009 00:00:00 -0400

In a volatile market, short-term stock trends can be used to control risk and enhance returns. The amplitude of short-term price swings is often greater than a stock's appreciation for a full year. Since a person cannot know in advance whether a short-term "dip" will not become a "plunge," it is necessary to pay careful attention to the dips, and to set limits to how much of a decline in stock price will be allowed before selling. Investors have been dragged kicking and screaming to the realization that buying good quality stocks and putting them in a safe for 5 years is not the way to obtain great returns in the market. That can work with a good mutual fund (if the manager is a good stock-picker who has a good sell discipline), because the manager performs the necessary buying and selling while the investor simply stays put and waits. Though a person might do well sitting and waiting for a mutual fund to perform, sitting and waiting for individual stocks no longer works as well as it once did. **End Summary** Topics: Volatile market]]> short-term]]> stock trends]]> control risk]]>]]> About the Author: ]]> Dr. Winton Felt has market reviews, stock alerts, free tutorials at http://www.stockdisciplines.com Information on Stop losses including volatility stop losses, videos at http://www.stockdisciplines.com/stop-losses Stock alerts, pre-surge "setups," videos at http://www.stockdisciplines.com/stock-alerts

The Advantage of Exchange-Traded Funds (ETFs)

Sun, 24 May 2009 00:00:00 -0400

ETFs (Exchange-Traded Funds) which can be traded like stock at any time during market hours, have low expense ratios, have less risk than individual stocks, do not have some of the tax disadvantages of a regular mutual fund, do not pool investor capital, and are constructed so they are far less susceptible than "standard" mutual funds to the fraudulent behavior of some investors. Though they trade like stock, they are similar to sector funds and index funds in the construction of their portfolios. If you are interested in sector and index investing or if you are a little afraid of the volatility of individual stocks, you might consider exchange-traded funds (ETFs). In a regular "open" mutual fund, investors buy shares directly from the fund. When they want to sell shares, they sell them back to the fund. Assets are held in a pooled account. An ETF is actually a mutual fund that trades (and is bought and sold any time during market hours) just like a stock. Investors buy shares from and sell shares to other investors just as if they were buying and selling stock. Your assets do not share a "pooled account" with other investors in the fund. **End Summary** Topics: The advantage]]> ETF]]> exchange-traded fund]]> traded like stock]]>]]> About the Author: ]]> Dr. Winton Felt has market reviews, stock alerts, free tutorials at http://www.stockdisciplines.com A list of high-momentum stocks is at http://www.stockdisciplines.com/momentum A list of high-strength ETFs is at http://www.stockdisciplines.com/strongest-etfs

Stock Market Investing: Long-Term or Short-Term?

Fri, 15 May 2009 00:00:00 -0400

To have a pre-disposition to buy and hold stocks for the long-term can be an extremely expensive frame of mind. The long-term market trend is up, but in a volatile stock market, the long-term gain is often laden with risk and not nearly as great as many short-term gains. Risk vs. return has greatly increased for the long-term stock market investor. People argue that tax consequences are their reason for holding. That argument lacks weight. It is very difficult for some people to break away from old habits and patterns of thinking about the stock market. Those who are unwilling to learn from market crashes are doomed to repeat the lesson. A few years ago, investors were told that to buy and hold for the long-term was the wise course of action for investors because the long-term trend of the market is up. If you took any other approach, you were a speculator at best and a gambler at worst. Brokers and mutual fund managers were the most vocal proponents of this investment philosophy. The media also joined the chorus and the concept became a part of the "accepted" market lore. Investor thinking, in this regard, lost elasticity. **End Summary** Topics: Buy and hold]]> long-term]]> short-term]]> volatile market]]>]]> About the Author: ]]> Dr. Winton Felt has market reviews, stock alerts, free tutorials at http://www.stockdisciplines.com Information on Stop losses including volatility stop losses, videos at http://www.stockdisciplines.com/stop-losses Stock alerts, pre-surge "setups," videos at http://www.stockdisciplines.com/stock-alerts

The Fundamental vs. the Technical in Stock Buy and Sell Decisions

Thu, 07 May 2009 00:00:00 -0400

Positive technical signals tend to precede good financial reports from a company. That is, the technical patterns precede and anticipate the fundamental reports. Stock price patterns reflect the buying and selling of all the people who have intimate knowledge about the company. The rest of the investment world creates the noise in stock behavior that accompanies the pattern created by those with knowledge. That is why sell strategies based on fundamentals are too slow in a volatile market. Before the crash in 2000, many investment managers had relied on "fundamentals" to tell them when to sell. However, as the market crash approached it was often the case that by the time the company announced that earnings were going to be "soft," the stock had already declined. Sell strategies based on fundamentals (earnings, cash flow, order backlog, etc.) turned out to be much too "sluggish" in relation to market action and in comparison with sell signals based on technical analysis (volume & price patterns of the stock). The problem was compounded by the fact that analysts were often far from accurate in their forecasts regarding the financial prospects of companies. **End Summary** Topics: Stock]]> Fundamental]]> technical]]> buy and sell]]> decisions]]>]]> About the Author: ]]> Dr. Winton Felt has market reviews, stock alerts, free tutorials at http://www.stockdisciplines.com Information on Stop losses including volatility stop losses, videos at http://www.stockdisciplines.com/stop-losses Stock alerts, pre-surge "setups," videos at http://www.stockdisciplines.com/stock-alerts

What does Timing the Market or Market Timing Really Mean?

Wed, 29 Apr 2009 00:00:00 -0400

"Timing the market" is considered by many to be a foolish exercise. Timing the market is indeed foolish if it is done the way many seem to think it is done. However, it is really a matter of having a good sell strategy or stop loss system coupled with a good buy strategy. Expert timers do not buy because they feel a stock is a "good" one to own, or sell because they feel it is "high." They buy because there has been a buy signal, and they sell because there has been a sell signal. Some writers in the financial media color their articles with their own uninformed opinions rather than search out the facts. Let me give you an example of what I mean. In a recent well-known financial publication, a widely followed writer wrote about "market timing" and said that it has taken on a new meaning that differs markedly from the original meaning of the term. The term "market timing" has been used in reference to how some individuals trade mutual funds by illegally locking in an unfair price advantage and profiting on small pricing gaps between markets in different time zones. **End Summary** Topics: Market timing]]> timing the market]]> sell strategy]]> stop loss]]>]]> About the Author: ]]> Dr. Winton Felt has market reviews, stock alerts, free tutorials at http://www.stockdisciplines.com Information on Stop losses incl. volatility based stop losses, videos at http://www.stockdisciplines.com/stop-losses Stock alerts, pre-surge "setups," videos at http://www.stockdisciplines.com/stock-alerts

The Best Stop Loss for Long-Term Investors

Sat, 18 Apr 2009 00:00:00 -0400

There is always a chance that the stock will reverse direction just after it has triggered the stop loss, no matter where a stop loss is placed. We wanted to know if the amount of decline allowed by the stop loss affected the probability of a reversal immediately after the stock is sold. To answer this question, we computed the percentage of incidents (over a period of about 20 years) in which a drop of various specified magnitudes from a recent high was followed quickly by a resumed up-trend, rendering the sale unnecessary. We discovered that by changing an automatic stop-loss from 8% (below the high) to 9%, we could cut the percentage of unnecessary sales at a loss in half. Further research revealed that after a drop of slightly over 14%, there was another dramatic drop in the number of "whipsaws." A drop of this size was significantly less likely to be recovered by the stock in the near future than for all drops of less magnitude. Therefore, a stop-loss of 15% does make a lot of sense. Sometimes, however, stocks do recover. **End Summary** Topics: Best stop loss]]> long-term]]> investors]]> minimize loss]]>]]> About the Author: ]]> Dr. Winton Felt has market reviews, stock alerts, free tutorials at http://www.stockdisciplines.com Information on Stop losses incl. volatility stop losses, videos at http://www.stockdisciplines.com/stop-losses Stock alerts, pre-surge "setups," videos at http://www.stockdisciplines.com/stock-alerts

Diversification and Stop Loss Placement

Thu, 09 Apr 2009 00:00:00 -0400

What do the "experts" say about stop-losses? Granville, Weinstein, Dines, Magee, Crane, Edwards, Zweig, O'Neil, Wycoff, Sperandeo, Bernstein, Schwager, Murphy, and many others agree that stop-losses are an important part of any investment discipline. Some investment professionals, like William O'Neil of Investors Business Daily, say that a person should sell any stock that drops 8% below the buy price. They also maintain that an investor should hold about 5 stocks. That means a drop of 8% represents a hit to the portfolio of 1.6% for any single stock that drops 8%. O'Neil does allow investors with very large portfolios to hold a few more stocks. However, a person with $3000 is advised to hold no more than 2 stocks. Therefore, these smaller investors are being advised to tolerate a 4% impact on their entire portfolios when a stock is "stopped-out" with an 8% loss (8% Ã· 2 = 4%) in addition to a 3.7% brokerage commission for the sale (Schwab's standard rate). **End Summary** Topics: Diversification]]> stop loss placement]]> Granville]]> Weinstein]]>]]> About the Author: ]]> Dr. Winton Felt has market reviews, stock alerts, free tutorials at http://www.stockdisciplines.com Stop loss info with volatility stop losses, videos: http://www.stockdisciplines.com/stop-losses Stock alerts, pre-surge "setups," videos: http://www.stockdisciplines.com/stock-alerts

Timing the Market for Profitable Stock Investment

Tue, 31 Mar 2009 00:00:00 -0400

It is a fact that we can use the market's trend as an ally in the buying and selling of our stock positions. This is possible because the market signals when it is starting a new bullish trend or a new bearish trend. You can know whether or not the market will support you if you bet on a stock rising, or on a stock declining. Investors can learn to time the market profitably. A few years ago, there were many news articles about "Market Timing" and the notion that it is illegal. In their ignorance, reporters blurred the difference between illegal and legal "timing." The illegal form of timing was in reference to the way some portfolio managers bought mutual funds. Legal fund investing involves making purchases before the market closes (when the closing price of the fund is not yet known). You purchase with the knowledge that the price of fund shares will be determined at the close of market. It is illegal to buy mutual fund shares after 4 p.m. at 4 p.m. prices. The illegal activity that was in the headlines involved "investors" doing just that. **End Summary** Topics: Market timing]]> market signals]]> buying and selling]]>]]> About the Author: ]]> Dr. Winton Felt has market reviews, stock alerts, and free tutorials at http://www.stockdisciplines.com Information and videos about stock alerts and pre-surge "setups" are at http://www.stockdisciplines.com/stock-alerts Information and videos about stop losses are at http://www.stockdisciplines.com/stop-losses

The Market is Rising but Stocks Keep Breaking Down

Thu, 26 Mar 2009 00:00:00 -0400

The market appears to have changed from being a declining market to being a rising market. Day after day, reporters announce that there has been another market advance. Yet, it may seem that every time you invest in a stock it breaks down and your stop loss is triggered. It is not always easy to participate in a new uptrend. During the transition from a bear market to a bull market, is parking your assets in a money-market fund really your best option? Here are some alternatives. In the transition time, when the market appears to be in the beginning phase of a new up-trend after a prolonged decline, we may hesitate to invest until we have more assurance that the trend is likely to endure awhile. In the early stages of a recovering market, we may be slower to invest than we could be. There is a good reason for this. Those who carefully monitor stock behavior during these times may notice that an inordinate number of stocks break down and collapse after attempting to reverse course. Even though the market seems to be recovering and indexes are rising impressively, individual stocks are churning. **End Summary** Topics: Bear market]]> individual stocks]]> choppy]]> break down]]>]]> About the Author: ]]> Dr. Winton Felt has market reviews, stock alerts, and free tutorials at http://www.stockdisciplines.com Information and videos about stock alerts and pre-surge "setups" are at http://www.stockdisciplines.com/stock-alerts Information and videos about stop losses are at http://www.stockdisciplines.com/stop-losses

Control Risk and Loss in the Stock Market

Sun, 22 Mar 2009 00:00:00 -0400

Risk is the probability of loss. It is best to estimate it and to adjust your purchase and sell strategies to it in order to control loss before the purchase is made. Correct timing of purchases, buying near support, limiting loss potential, and stopping the decline by using volatility stop losses are all ingredients of a good risk control system. Let's look at a few of these loss control discipline components. One method of controlling risk is by timing purchases so that they occur at or near support. That way, your stop loss can be a very small distance away from your purchase price. If you buy when the stock is 5% above its trendline, for example, it will mean little if the stock declines 5% to reach its trendline. Since stocks often return to support, why would you sell? You would sell only if it broke to the downside through its rising trendline. Therefore, your loss would be calculated by adding the distance the sell point is below the trendline to the distance the purchase price was above the trendline. Buying at the trendline instead of above it would eliminate that unnecessary 5% loss. **End Summary** Topics: Control risk]]> timing]]> buying]]> support]]> limiting loss]]>]]> About the Author: ]]> Dr. Winton Felt has market reviews, stock alerts, and free tutorials at http://www.stockdisciplines.com Information and videos about stop losses are at http://www.stockdisciplines.com/stop-losses Information and videos about stock alerts and pre-surge setups are at http://www.stockdisciplines.com/stock-alerts

A Test To Find The Best Moving Average Sell Strategy

Mon, 16 Mar 2009 00:00:00 -0400

In order to develop or refine our trading systems and algorithms, our traders often conduct experiments, tests, optimizations, and so on. One of our traders tested a variety of moving average-based sell strategies and we are now sharing some of those findings. Richard Donchian popularized the system in which a sale occurs if the 5-day moving average crosses below the 20-day moving average. R.C. Allen popularized the system in which a sale occurs if the 9-day moving average crosses below the 18-day moving average. Some traders feel they give up less of the gains they achieve if they use a shorter long moving average. These people prefer to sell if the 5-day moving average crosses below the 10-day moving average. Traders have used variations on these ideas (some touting the benefits of one variation and others touting the benefits of another). A friend told me about the crossover of the 7-day and 13-day exponential moving averages. Because that system was highly recommended, it was included in the tests for comparison purposes. The strategies covered in this particular series of tests were as follows and all involved simple moving averages except where otherwise noted. **End Summary** Topics: Sell strategy]]> moving average]]> crossover]]> best strategy]]>]]> About the Author: ]]> Dr. Winton Felt has market reviews, stock alerts, and free tutorials at http://www.stockdisciplines.com Information and videos about stop losses are at http://www.stockdisciplines.com/stop-losses Information and videos about stock alerts and pre-surge setups are at http://www.stockdisciplines.com/stock-alerts

Investor or Trader: What's the Bottom Line?

Fri, 13 Mar 2009 00:00:00 -0400

"Buy and hold" say the long-term investors. "Sell losers quickly to cut losses" say the short-term traders. "We are in it for the long-term" say the investors. "Hold only rising stocks, and let profits grow" say the traders. Though most people who call themselves "investors" are not really disciplined, those who are disciplined have much in common with traders. Most investors are happy if they get a return of 7% to 10% a year. Most traders feel like a failure if they have not achieved at least a 30% return. Investors feel elated if they get 15%. Traders feel the same if they get 60%. On rare occasions an investor will get a return of 30% to 35%. Some traders get occasional returns in excess of 100%. In general, seasoned traders aim for a return that is three to four times as high as that of an experienced investor. Many "investors" buy shares in a few mutual funds. Mutual funds tend to hold onto stocks while they rise and fall. Other "investors" buy a basket of stocks and hold them while they rise and fall. **End Summary** Topics: Buy and hold]]> sell losers quickly]]> cut losses]]> long-term]]>]]> About the Author: ]]> Dr. Winton Felt has market reviews, stock alerts, and free tutorials at http://www.stockdisciplines.com Information and videos about stop losses are at http://www.stockdisciplines.com/stop-losses Information and videos about stock alerts and pre-surge setups are at http://www.stockdisciplines.com/stock-alerts

Small Losses Are the Mark of a Disciplined Trader

Sun, 08 Mar 2009 00:00:00 -0500

The single most identifiable mark of a disciplined trader is that he will sell quickly stocks that lose and continue to hold stocks that gain. Accordingly his trade confirmations will show only small losses. A person cannot achieve this without discipline. A string of controlled losses is one of the by-products of active risk management. If all losses are blunted while gains are allowed to run, the net result should be portfolio gains (even if there have been more losers than gainers). This is not merely theory. I have seen and measured the effect in many different winning strategies. Let me use a mining metaphor to illustrate the point. The experienced trader takes numerous positions. This is his "mining" operation. By taking numerous positions he is "digging and scraping," as he searches for nuggets of "gold." In the process, he'll find plenty of worthless rocks and an occasional piece of "fool's gold." The worthless rocks and "fool's gold" are the stocks that disappoint. These are the situations where the expected surge in price does not take place, or where the stock falls instead of rising. **End Summary** Topics: Sell quickly]]> sell stocks]]> stocks that lose]]> small losses]]>]]> About the Author: ]]> Dr. Winton Felt has stock alerts, free tutorials, and market reviews at http://www.stockdisciplines.com Information and videos on volatility-adjusted stop losses are at http://www.stockdisciplines.com/stop-losses Information on pre-surge "setups" and stock alerts are at http://www.stockdisciplines.com/stock-alerts

An Intermediate-Term High-Performance System

Mon, 02 Mar 2009 00:00:00 -0500

A system that keeps you invested in the strongest stocks of the S&P100 Index and without any of its weak stocks should enable you to outperform the market by a wide margin. For high performance, you must use the right kind of strength measurement, regularly rank the stocks, and keep the highest-ranked stocks in your portfolio. Consider that the market appreciates more than 10% a year on average. That is, the market has a long-term upward bias. The S&P500 is used by professional analysts and money managers as a proxy for "the market." The S&P100 is made up of the 100 largest and most important stocks in the S&P500. The S&P100 tracks the S&P500 closely but has slightly outperformed it over the years. Thus, a portfolio consisting of all the stocks in the S&P100 is likely to rise about 10% a year on average. Half the stocks in the portfolio may be rising and half may be falling, but the rising stocks will usually have a slightly greater impact on the portfolio than the declining stocks (otherwise, the index would not rise). If we disregard the impact of weighting factors, we can make a general observation. **End Summary** Topics: Strongest stocks]]> high-performance]]> system]]> strength measure]]>]]> About the Author: ]]> Dr. Winton Felt has market reviews, stock alerts, and free tutorials at http://www.stockdisciplines.com Information and videos about stop losses are at http://www.stockdisciplines.com/stop-losses Information about and illustrations of pre-surge "setups" are at http://www.stockdisciplines.com/stock-alerts

Stock Buy and Sell Signals With The CCI

Wed, 25 Feb 2009 00:00:00 -0500

Stocks and commodities cycle. The Commodity Channel Index (CCI) was created by Don Lambert. It is used to detect when cycles begin and end. Thus, it has been widely used as a buy and sell signal generator for both stocks and commodities. Even the inexperienced observer is aware that stocks exhibit cyclical and trending behavior patterns. Obviously, traders want to buy early when a stock begins to trend and sell early when that trend comes to an end. The CCI can be a great help in spotting these trend changes. It examines current prices in the light of past prices without using any weighting factors that would artificially distort the raw data. For example, it uses a simple average rather than over-weighting data at one end of the measurement period (as in a weighted moving average or exponential moving average). Comparing current prices to a simple moving average also provides a moving reference point (it always reflects current conditions without biasing it). The equation for the CCI has a divisor that adjusts to reflect price variability. **End Summary** Topics: Stocks cycle]]> Commodity Channel Index (CCI)]]> Lambert]]> signals]]>]]> About the Author: ]]> Dr. Winton Felt has market reviews, stock alerts, and free tutorials at http://www.stockdisciplines.com Information and videos about stop losses are at http://www.stockdisciplines.com/stop-losses Information about and illustrations of pre-surge setups are at http://www.stockdisciplines.com/stock-alerts

The Triple Moving Average Crossover System

Thu, 19 Feb 2009 00:00:00 -0500

The triple moving average crossover system is used to generate buy and sell signals. Its buy signals come early in the development of a trend, and its sell signals are generated early when a trend ends. The third moving average can be used in combination with the other two moving averages to confirm or deny the signals that they generate. It thereby reduces the chance that the investor will be acting on false signals. The shorter the moving average, the more closely it will follow the price trend. When a stock begins an uptrend, short-term moving averages will begin rising far earlier than longer-term moving averages. For example, if a stock declines by equal amounts each day for 50 days, and then begins to rise by the same amount each day for 50 days, the 5-day moving average will start to rise on the third day after the change in direction, the 10-day average will begin to rise on the sixth day after the change, and the 20-day average will begin to rise on the eleventh day. The longer a trend has persisted, the more likely it is to continue persisting, up to a point. **End Summary** Topics: Triple moving average]]> moving average crossover]]> system]]> buy]]>]]> About the Author: ]]> Dr. Winton Felt has market reviews, stock alerts, and free tutorials at http://www.stockdisciplines.com Information and videos about stop losses are at http://www.stockdisciplines.com/stop-losses Information about and illustrations of pre-surge setups are at http://www.stockdisciplines.com/stock-alerts

Buy and Sell Signals of A Moving Average System

Fri, 13 Feb 2009 00:00:00 -0500

One of the main problems with using moving average crossovers as actionable signals is that stocks may whipsaw back and forth across their moving average. It is therefore an advantage to wait for a good "setup" before acting in order to avoid being whipsawed in and out of the stock (and to avoid excessive trading commissions). Whipsawing occurs primarily when the stock is not trending. Traders use other tools to identify non-trending situations early so they can switch to strategies that work better in non-trending environments. Most traders who use moving average crossover systems consider any extra trades they might make to be the price one must pay to be positioned correctly when the stock finally stops whipsawing and begins to trend. In general, traders consider the benefit of the strategy to be that it enables a trader to enter a position close to the beginning of a trend and to leave near the end of the trend. Some traders reduce the number of "false signals" by using the move of a short-term moving average across a longer-term moving average as the signal mechanism rather than the crossover by a stock's price. **End Summary** Topics: Stock price]]> crossing]]> moving average]]> buy signal]]>]]> About the Author: ]]> Dr. Winton Felt has market reviews, stock alerts, and free tutorials at http://www.stockdisciplines.com Information and videos about stop losses are at http://www.stockdisciplines.com/stop-losses Information about and illustrations of pre-surge setups are at http://www.stockdisciplines.com/stock-alerts

Stocks Cycle Through Four General Phases

Sat, 07 Feb 2009 00:00:00 -0500

Stocks cycle, going through a pattern of advance, consolidation, decline, base-building, and advance again. To buy right and to sell right, it helps to know where a stock is in its general cyclical pattern. There are four general phases through which all stocks cycle most of the time. Some technical analysts refer to these "phases" as "stages," but all stocks cycle through the same cyclical pattern whatever you call the parts of that pattern. Value Line does not discuss these phases, but The Valuator breaks the general pattern down into 8 phases with a different flag for each phase. For the sake of this discussion and to simplify, think of the general pattern as similar to what you see if you draw the letter "S" backwards and turn it on its side. More accurately, the general pattern of stock behavior most of the time is similar to a sine wave. The exception is when the stock is trending, but most of the time even a trending stock has a tendency to cycle. The stock's actual pattern has more of a sawtooth look than that of a smooth sine wave. **End Summary** Topics: Stock cycle pattern]]> advance]]> consolidation]]> decline]]> base]]>]]> About the Author: ]]> Dr. Winton Felt has market reviews, stock alerts, and free tutorials at http://www.stockdisciplines.com Information and videos about stop losses are at http://www.stockdisciplines.com/stop-losses Information about and illustrations of pre-surge setups are at http://www.stockdisciplines.com/stock-alerts

You Need to Know Your Mutual Fund

Sat, 31 Jan 2009 00:00:00 -0500

There are some basic things you should know about mutual funds in general and about the specific fund in which you are about to invest. Mutual funds with a bad track record are dissolved. The fund assets are absorbed by another fund and the fund manager is given a new fund to manage. Also, an average fund manager has limited experience. A mutual fund company does not want to keep a poorly performing fund in its fund family for very long. A poor performer brings down the average performance of its funds. Also, when the financial media makes comparisons between funds in the same fund category, new assets go to the best performer rather than to one near the bottom of the list. For example, if you were looking at the relative performance of 50 large-cap growth funds, and saw that fund ABC returned an average of 19% a year for the last 5 years and that fund XYZ had lost 2% a year over the same period, where would you invest your money? **End Summary** Topics: track record]]> new manager]]> new fund]]> experience]]> merge]]>]]> About the Author: ]]> Dr. Winton Felt has market reviews, stock alerts, and free tutorials at http://www.stockdisciplines.com Information and videos about stop losses are at http://www.stockdisciplines.com/stop-losses Information about and illustrations of pre-surge setups are at http://www.stockdisciplines.com/stock-alerts

Stop Losses the Right Way, Where, and How

Sun, 25 Jan 2009 00:00:00 -0500

When volatility is high and stocks whipsaw up and down, how do you know where to place a stop loss? Is there a right distance from the stock's price to place the stop loss? Is there a correct procedure to determine where to put it? As the stock approaches the stop loss, you may get nervous and want to cancel the stop loss so the stock will not be sold. How do you keep from selling too soon or from getting "psyched" out of a good stop loss (as when emotions cause a person to second-guess reason) and staying with a bad position too long? The answer to the first questions is related to the answer to the last question. If your stop loss placement is mathematically sound and based on the laws of probability, and you truly understand and accept what that means, you won't be as easily psyched out. That is a major advantage of a volatility stop loss. It is based on mathematically determined significance. The same can be said for stop losses based on support levels. A breakdown through a support level is an event of significance. **End Summary** Topics: Stop loss]]> where]]> place]]> where to put]]> volatility stop loss]]>]]> About the Author: ]]> Dr. Winton Felt has market reviews, stock alerts, and free tutorials at http://www.stockdisciplines.com Information and videos about stop losses are at http://www.stockdisciplines.com/stop-losses Information about and illustrations of pre-surge setups are at http://www.stockdisciplines.com/stock-alerts

To Sell a Stock or Hold--When Is it Time?

Sun, 19 Oct 2008 00:00:00 -0400

Should you use the strategy of the long-term buy-and-hold investor or the short-term sell tactics of the trader in order to lock in small gains? Twenty years ago, it was relatively easy to categorize oneself as a trader or long-term investor. In recent years, the issues have been made more complex by the amplitude of market swings. Let us look at a few alternatives and possibly a strategy. Imagine a straight line that rises 20% in a year. Assume that a stock is moving along this rising trendline. Suppose the stock touches this line at the bottom left at point A, rises to a high at B about 12% above the line, declines back to the line and touches it at C, then repeats this pattern several times reaching peaks at D, F, and H and touching the rising line at E, G, and I (all during the same year). Of course this is an oversimplification. Peaks are not always 12% above a rising trendline, but that is not important to the point of this illustration. **End Summary** Topics: Sell strategy]]> buy-and-hold]]> short-term]]> sell]]> time]]> lock-in]]> gain]]>]]> About the Author: ]]> Dr. Winton Felt has market review information, stock alerts, and free tutorials at http://www.stockdisciplines.com/ Information and videos about volatility-adjusted stop losses at http://www.stockdisciplines.com/stop-losses and information about and illustrations of pre-surge setups at http://www.stockdisciplines.com/stock-alerts

The Probability of a Stop Loss Being Triggered

Sun, 18 May 2008 00:00:00 -0400

Volatility-based stop loss placement can be optimized. For some folks the next few paragraphs may be difficult reading. However, it is not necessary for you to get more than the general idea. If you like, scan over it quickly and move on to the paragraph after number 5 in the list that follows. On the other hand, if you can bear with us a moment, reading this should increase your understanding of why volatility-adjusted stop losses are among the best. In a group of people that has a normal distribution of height measurements, the overall pattern of heights will distribute along a bell-shaped curve (the diagram can be seen at stockdisciplines.com in tutorial # 24). Lets go to the center of the bell curve and create a vertical dashed line from the base-line to the curve and label it A. If you compute the average height, the computed average will be at A in our diagram. Add six more vertical dashed lines at equal distances along the base line to the right of line A. Label them B, C, D, E, F, and G, respectively. **End Summary** Topics: volatility based]]> volatility adjusted]]> stop loss]]> trailing stop loss]]> rising stock]]>]]> About the Author: ]]> Dr. Felt has other tutorials at: http://www.stockdisciplines.com For a simple way to obtain volatility-based stop losses without needing to know how to do the math, go to http://www.stockdisciplines.com/stoplosses The diagram referred to is in Tutorial 24 at http://www.stockdisciplines.com/page/1539717