Sunday, August 29, 2010

Importance of stock selection!

Both of these stocks bottomed out at the same time along with the overall markets around the start of July. However, where as DTG is only up about 17% from the bottom, JKS is up over 150% from the bottom (yellow arrows). I entered DTG after its first pullback at $46.00 and got out just below $50.00 for a decent profit relative to risk since my stop loss was at $45.00. Although JKS had shown it self to be a far superior stock to DTG and offered three seperate entry opportunities (all of which went on to outperform the entire move in DTG) ; I passed on all of them and missed out on serious profits.

This is one area of my trading that I have been thinking deeply about and battling with ever since I first started trading. The tendency to pass on the true leading stocks which "appear overbought" in favour of the substandard leaders that have not yet begun to move and "appear to have a lot of upside in them". This has cost me a lot in the past 9 months and I am working to improve this.

Getting better at trading requires one to accept that they will never be perfect and hence that constant self evaluation is needed. This process has helped me to become a profitable trader for the first time this year and will help me to become even better (example, the lesson learnt above and in the post "In this market...hit singles not home runs!"

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