Swing Trading: A Primer on Rumor, Opinion and Spin for Data-Driven Traders

         By David Penn | TradingMarkets.com | August 09, 2011 04:45 PM

“The fault, dear Brutus, is not in our stars, but in ourselves, that we are underlings.”

–Shakespeare, “Julius Caesar”

Are you paying more attention to rhetoric of politicians than to the risk management of your trading portfolio?

Are you busy worrying about what the President/Fed Chairman/Congress/Europe/China is going to do to or for the markets instead of focusing on what you can do for yourself to make better choices when it comes to buying and selling stocks?

When markets begin selling off, one of the most dangerous tendencies traders can develop is to succumb to the distraction of either (a) looking for someone to blame or (b) looking for someone to “save the day.”

Both of these distractions should be avoided. Finding someone to blame won’t improve a trader’s ability to know when the market is acting atypically based on historical norms. And on the other hand, searching about desperately for a White Knight to come to the rescue won’t help a trader do a better job of properly diversifying her portfolio to take advantage of instances when markets are moving down and sideways, as well as up.

You can learn more about these critical skills of risk management and portfolio diversification in the upcoming Fall Semester of the TradingMarkets Swing Trading College. If you are new to the Swing Trading College, then click the link below to learn more.

In the Fall Semester of the Swing Trading College, traders and investors will learn what proper risk management is all about, and why it is important to build a portfolio of strategies – rather than a portfolio of stocks – that will outperform regardless of market direction. If you are having a hard time trading successfully in 2011, then the Swing Trading College may be just what you need.

The bottom line is this: if you are a data-driven trader, the kind of trader who believes that at the end of the day, everything knowable is in the price, then the world of opinion, rumor and politics is not your friend. The data is. As one trader told me years ago, “I can’t help but have CNBC on. But at least it’s on mute.”

A number of companies are reporting quarterly earnings on Wednesday, including Cisco Systems Inc (CSCO | PowerRating), News Corp Inc Cl A (NWSA | PowerRating), and a pair of retailers: Macy’s Inc (M | PowerRating) and Polo Ralph Lauren Corp (RL | PowerRating). Note that shares of all four companies are trading below the 200-day moving average.

Here are 7 Stocks You Need to Know for Wednesday.

With the momentum to the downside slowing on Tuesday, we’ll continue to look at stocks that have recently pulled back, but remain above their 200-day moving averages. These are among the stocks that have suffered the least technical damage and should be among those short term traders keep closely watched.

Amazon.Com Inc (AMZN | PowerRating) rallied by more than 5% in trading on Tuesday. The stock has remained above its 200-day moving average for the duration of the current correction, despite pulling back for six out of seven days prior to Tuesday’s bounce.

Up more than 3% ahead of Tuesday’s trading after pulling back for three days in a row were shares of Lululemon Athletica Inc. (LULU | PowerRating). LULU has finished in oversold territory above the 200-day moving average for the past two sessions in a row.

Rallying by well over 12% ahead of trading on Tuesday were shares of   Crocs Inc (CROX | PowerRating). The stock had closed just outside of oversold territory on Monday.

Shares of Green Mountain Coffee Roasters (GMCR | PowerRating) closed lower for three days in a row, including a finish in oversold territory above the 200-day, before bounding higher by more than 11% ahead of trading on Wednesday. Meanwhile   Peet’s Coffee & Tea (PEET | PowerRating) gained more than 4%, continuing to trade near its highest levels of the year.

Five consecutive lower closes above the 200-day moving average and three in oversold territory were enough to bring out the buyers in Baidu, Incorporated (BIDU | PowerRating). The stock closed higher by more than 10% in Tuesday’s trading.

Shares of Biogen Idec Inc (BIIB | PowerRating) rallied late in the day on Tuesday to close up more than 1% after pulling back by more than 4% intraday. BIIB had finished lower for four out of the previous five trading days.

Remember, you can get 7 Stocks You Need to Know delivered for free every evening after the market closes. Click here to sign up.

David Penn is Editor in Chief of TradingMarkets.com






Wednesday, August 10th, 2011 Uncategorized

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