In this week’s issue: 

• Weekly Commentary
• Strategy of the Week
• Stocks That Meet The Featured Strategy

n This Week’s Issue:

– Stockscores’ Market Minutes Video – Are You Expecting
– Stockscores Trader Training – The Plain Fool
– Stock Features of the Week – The Oversold Bounce

Stockscores Market Minutes Video – Are You Expecting
Traders who focus on the process instead of having expectations for profit are more effective because their emotion is reduced. That plus this week’s market analysis.Click Here to Watch To get instant updates when I upload a new video, subscribe to the Stockscores Youtube Channel.

Trader Training – The Plain Fool
It’s better to miss a good trade than to take a bad one. Missing a good trade doesn’t deplete your capital-it only fails to add to it. A bad trade will not only reduce the size of your trading account, it will eat up emotional capital and your confidence. A losing trade is not a bad trade because a bad trade is the one that you make despite it not meeting your requirements. Bad trades come from working hard to see something that’s not there, guided by your need to trade rather than the market offering a good opportunity.

I have read very few books about the stock market, but one that I’ve read more than once and that I think is a must-read for every investor is Reminiscences of a Stock Operator by Edwin Lefevre. Here is a wonderful quote from that book that captures the essence of what this chapter is about:

What beat me was not having brains enough to stick to my own game-that is, to play the market only when I was satisfied that precedents favored my play. There is the plain fool, who does the wrong thing at all times everywhere, but there is also the Wall Street fool, who thinks he must trade all the time. No man can have adequate reasons for buying or selling stocks daily-or sufficient knowledge to make his play an intelligent play.
-Reminiscences of a Stock Operator

I advise all my students that they will make more money by trading less, at least so long as trading less is the result of having a high standard for what they trade. If you tell yourself you’re limited to only making 20 trades a year, you’re probably going to be very fussy about what trades you take. With less than two trades to be made each month, only the very best opportunities will pass your analysis. All of the “maybes” or “pretty goods” will get thrown out.

We take the pretty good trades because we’re afraid of missing out. It’s painful to watch a stock you considered buying but passed on go up. You remember this pain and the next time you see something that looks pretty good, you take it with little regard for the expected value of trading pretty good opportunities. Pretty good means the trade will make money some of the time and lose some of the time, and the average over a large number of trades may be close to breaking even. The fact that one pretty good trade did well is reasonable and expected. In the context of expected value, taking those pretty good trades many times will lead to less than stellar results when the losers offset the winners.

You shouldn’t judge your trading success one trade at a time. You must look at your results over a large number of trades. To maximize overall profitability requires you to have a high standard for what trades you make. Maintaining that standard will be easier if you take the trades that stand out as an ideal fit to your strategy, not by taking those that are marginal and require a lot of hard work to uncover.

Oil and energy stocks have been really beat up over the past month and that sets up for a short term trade that savvy traders can take advantage of. With the sentiment overwhelmingly negative, it is likely that the sellers are getting exhausted in the short term and that will bring a bounce in both Oil and Energy stocks.

We should never try to buy the bottom, it ends up being the most expensive way to take a position because trying to catch a falling knife is rarely successful.

It is also important to stress that Oil and Energy stocks are in long term downward trends and I don’t see any reason to change the bearish view. I simply think that there will a short term bounce back, much like we saw in late January and mid March that is very tradeable.

What you want to look for is a show of buyer support on the short term chart. I recommend watching the 30 minute chart of the index ETF, like T.XEG or XLE. Look for the three phases of a turn around; break of the downward trend, formation of a rising bottom and then a break higher from a rising bottom. When that happens, you can either trade an ETF or pick a couple of stocks to benefit from the bounce back.

These bounces occur because those who are short want to take their profits and bargain hunters act on the lower prices. It is only when the perception of fundamentals starts to turn that the long term trend can reverse. These bounces typically just take prices back up to the longer term downward trend line before the sellers get motivated to act again.

If you have the time to watch the market closely through the day, look for the signs of an oversold bounce in Energy sometime in the next week or two.

1. T.XEG

2. XLE

References

• Get the Stockscore on any of over 20,000 North American stocks.
• Background on the theories used by Stockscores.
• Strategies that can help you find new opportunities.
• Scan the market using extensive filter criteria.
• Build a portfolio of stocks and view a slide show of their charts.
• See which sectors are leading the market, and their components. 

Disclaimer
This is not an investment advisory, and should not be used to make investment decisions. Information in Stockscores Perspectives is often opinionated and should be considered for information purposes only. No stock exchange anywhere has approved or disapproved of the information contained herein. There is no express or implied solicitation to buy or sell securities. The writers and editors of Perspectives may have positions in the stocks discussed above and may trade in the stocks mentioned. Don’t consider buying or selling any stock without conducting your own due diligenc