Where to Learn the Tricks of the Trade
Who wants to be a millionaire stock trader?
That was the motivation for many who attended the Online Traders World Expo in Oakland last weekend, one of a growing number of conferences that purport to teach amateur investors how to trade stocks.
About 1,800 people paid as much as $225 to get into the three-day conference, where the educational sessions, and the exhibitors, were largely focused on strategies and tools for aggressive trading.
The event was aimed at online traders, an obviously huge and growing group that includes everyone from day traders, who play the market minute-by-minute, to those who trade several times a week from their homes or offices.
What follows are some highlights from the conference.
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Novice “momentum” traders should start with basics, said Harvey Baraban, who teaches technical analysis at Golden Gate University and runs a for-profit series of trading seminars.
If you’re serious about trading profitably, he said, try studying stock charts each weekend to lay out a game plan for the coming week. The goal is to identify the industry groups that are performing well, and determine the strongest stocks in those groups, he said.
“We have a rotational market where you have to be quick” to get on board hot stocks, Baraban noted.
More important, traders have to be mentally prepared to get out of stocks even faster, if they go against you, Baraban said.
Even the best traders are right only 60% of the time, Baraban said. And when they’re wrong, they get out of a stock very quickly.
He advises investors to cut losses at 5% of their purchase price. In other words, if you buy a stock and it drops 5% from what you paid, sell it rather than risk a potentially crushing loss. (That strategy applies only to new purchases, not to pullbacks in a stock once an investor is sitting on a paper profit.)
In the case of volatile Internet stocks, traders can widen “stop-loss” levels to 10% because 5% swings are commonplace, Baraban said.
Baraban also recommended that traders steer clear of shares of any company in the days before the firm announces earnings because, he said, it isn’t worth taking the risk that the stock could tank if the news is bad.
To find stocks that have the potential to be momentum leaders in the short term, Baraban noted that many pros look for issues that are suddenly “breaking out” to new highs on heavy trading volume. They don’t always follow through, of course. But by definition, momentum stocks get that way as more traders chase what’s already hot.
Good leads on stocks like those can be found on financial Web sites such as Briefing.com (https://www.briefing.com) and Clearstation.com (https://www.clearstation.com), he said.
Briefing.com lists news snippets on stocks that move during the day. In particular, check out the site’s “In Play” and “Short Stories” sections.
At the Clearstation.com home page, click “Tag and Bag,” and then “Technical Events.” That brings up a list of stocks displaying important technical chart signs. Check out “Record Price Breakouts” and “Record Price Highs,” Baraban suggested.
What’s hot now? Momentum traders should keep an eye on Dell Computer (ticker symbol: DELL; Monday close and change: $57.88, up $1.44) this week, Baraban said. The stock is just off its all-time high reached last week, after rallying the last seven weeks.
Significantly, Dell’s “short-interest” level rose in the past month as the stock rallied, Baraban noted.
In a short sale, an investor borrows shares from a brokerage and sells them, hoping the market price will then drop so the borrowed stock can be replaced with shares bought at a much lower price.
But if the stock rises, the short seller is “squeezed” and may then rush to buy shares to cut his losses.
Thus, a high level of short interest can be bullish because it can provide an extra boost of buying demand for a stock that continues to rise.
If Dell breaks out this week, the price could soar if short sellers get squeezed, Baraban said.
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Mark Boucher, a co-founder of TradingMarkets.com, suggested eight possible strategies to find momentum stocks.
Like Baraban, Boucher recommended Briefing.com for real-time news on momentum stocks. He also recommended his own site (https://www.tradingmarkets.com).
He also strongly suggested Dailygraphs.com (https://www.dailygraphs.com), an online charting service run by William O’Neil & Co., publisher of Investor’s Business Daily.
Subscriptions don’t come cheap--the Dailygraphs.com Web site lists an annual rate of $720--but it provides essential information for traders, Boucher said.
On TradingMarkets.com, he suggested perusing the “StockScanner,” “Proprietary Momentum List,” “Cups and Handles” and “Momentum 10 Technology List” features. To find them all, from the home page click “Stocks,” then “Indicators.”
Like Baraban, Boucher also urged investors to cut their losses to protect their capital. “I’ve seen a lot of people go broke after having made 1,000%,” he said.
Another trading rule, he said, is to let your winners ride, and avoid the temptation to sell as long as a stock is rising. “Letting it ride is where you make the big bucks,” he said.
But Boucher also injected a heaping dose of caution into his talk.
Before passing away when Boucher was a boy, his father invested $100,000 via a trust fund to pay for his college education, he said. But the year was 1972--when the so-called Nifty Fifty stocks peaked, then began to plunge.
The trust fund shriveled to $10,000 as the market dived, Boucher said.
“We may be in a bubble that could pop at any time,” Boucher said, referring to the sky-high valuations of tech stocks, and to rampant market euphoria. “You can make a lot of money in bull markets, and give it all back” in a collapse, he warned.
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Even with remarkable advances in technology, amateur traders have been at a disadvantage in some ways.
One big example: They largely have been unable to find stocks just as they launch into big moves intra-day. The reason is that there are few affordable computer programs that let amateurs screen for real-time technical indicators.
A former chip designer at Intel is seeking to change that with the launch of Traderbot.com (https://www.traderbot.com). The site lets investors plug in various indicators such as volume patterns to identify stocks the instant they start moving.
Let’s say you want to find Nasdaq stocks whose trading volume is suddenly spiking up. With Traderbot.com, you could search for stocks where the minute-by-minute volume over the past five minutes is greater than the average for the day up to that point.
The site, which was unveiled last weekend, charges $39.95 a month. The first 1,000 users get the first month for free.
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Looking for other useful financial Web sites? Here are some “undiscovered” gems, most of them free, courtesy of Jan Parr, editor of Online Investor magazine:
* IntelligentSpeculator.com (https://www.intelligentspeculator.com) is run by Theresa Lo, a retired stock trader. Lo said she started the site to provide useful information to novice traders because she was dismayed seeing people take tips from chat rooms.
* Money.net (https://www.money.net) offers free streaming real-time stock quotes.
* FlexTrader.com (https://www.flextrader.com) rates stocks according to various technical indicators.
* Redchip.com (https://www.redchip.com) and America-invest.com (https://www.america-invest.com) track small-cap stocks.
* The Napeague Letter (https://www.napeague.com) is written by a Harvard MBA who does “nitty-gritty research on little-known stocks,” Parr said.
* SellSignal.com (https://www.sellsignal.com) can monitor a trader’s capital gains and tax liability. It also provides sell alerts based on an investor’s preselected criteria.
* TradersAccounting.com (https://www.tradersaccounting.com) helps active traders with tax issues.
* SuperStarInvestor.com (https://www.superstarinvestor.com) has 11,000 links to other sites.
* MoneyBulletin.com (https://www.moneybulletin.com) has information on income-producing securities and preferred stocks.
* Maxfunds.com (https://www.maxfunds.com) evaluates small mutual funds that fall under the radar of fund-analysis giant Morningstar.
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Walter Hamilton can be reached at walter.hamilton@latimes.com.
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What Makes for Good ‘Mo’
If you want to play the “momentum” stock trading game--zeroing-in on issues that have a high likelihood of rocketing in the near term--veteran trader Harvey Baraban of San Francisco suggests looking for Nasdaq stocks with the following “ideal” characteristics:
* Small capitalization (fewer than 25 million shares outstanding).
* Rising “short interest”--that is, an increasing number of shares borrowed and sold by bearish traders, betting the stock is headed lower. If they’re wrong, they’ll have to scramble to buy the stock to close out their losing bets, thus providing more fuel to power the stock higher.
* High “relative strength,” meaning the stock is consistently performing better than the Standard & Poor’s 500 index.
* Strong industry group ranking, meaning investor demand is strong for many stocks in the same industry.
* The stock is “breaking out” to a new high price on heavy volume.
* Share price greater than $50 a share.
* The next company earnings report is at least 30 days away.
* The stock gets coverage on CNBC, Daily Graphs, Briefing.com or other financial-oriented Web sites.
* The stock has “sponsorship,” meaning major brokerages are recommending it and major mutual funds are key investors.
Source: Harvey Baraban Seminars
