Saturday, May 29, 2010

An expensive lesson...

If you look back through the posts I have made on my blog. You will see that I pegged the intermediate term market bottom on Friday February 5th, 2010 to the day. Not only did I correctly anticiapte a turn in the markets, I also went long stocks but did not make much money!

Now this is the lesson that I learnt from February's trading. I was bang on interms of market timing. However, my stock selection was poor. I bought into NEP and SPU without a sound fundamental reason/catalyst that will cause them to rise. So I ended up in two stocks, in a sector that was topping that went no where meanwhile the market indexes zoomed higher without me.

Had I instead bought into a stock like NFLX or APKT that were breaking out of bases on the back of powerful earnings annoucements that surprised the markets instead of buying SPU and NEP, I would have doubled my money (assuming I had manage to hold on for the entire intermediate term move). In addition, these two stocks offered buy opportunites after I had anticipated a turn in the markets so I didnot have to be perfect with timing.

So the lesson has two parts. Firstly, one does not need to be perfect with market timing but close enough. Second and most importantly, however, one needs to select the right stocks to ride the market wave higher. Whether the catalyst is Post earnings announcement drift, sector momentum, new product announcement, new contract, CANSLIM or a combination of factors it does not matter. The important thing is that your money is concentrated in stocks that have a high probability of moving higher and out performing the market indexes.

Good luck and good trading!

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