Where Do I Place My Stop?

Hello everyone, thanks for stopping by. Today we are going to go over a few different techniques you can employ when trying to figure out were to place your stop orders.

First I always place a stop right after I place my opening order into a stock, this way I am setting my risk ratio at the very start and also take my emotions out of it from the get go. It can be pretty hard to take when it feels like you were the one idiot who bought the top, by setting a stop when we open our position we keep our ego out of the equation.
There are many different ways to determine were to set an initial stop, but I like to base it on the volatility of the stock. There are a few ways we can find this info but I like to look at a technical indicator called the Average True Range (ATR). Basically this indicator averages the daily price swings in a stock, it is usually an average of the last 14 days. If you would like to learn more about this indicator check Stockcharts.com.
Let me show you an example of how I would use this to place my stop.



Here is a stock that I have traded in the past that has been on a great uptrend over the last few weeks. As we can see around the first of July this stock started dropping and corresponding with that we see the ATR started rising and continued to a high of just under .60. Now if I was entering a position today there are two ways I could use this to set my stop, first I could set it at the high of .60, this way I assure myself that I wont get shaken out of this stock because of its normal volatility. Second I could set it at its current volatility of .50. This way I wont get shaken out due to its daily swings but if I do get stopped out I know that there is possibly something very wrong with this stock. Of course we should not just use this as or only reference. We should also look at support and resistance areas in the stock chart as well. For instance we can see that $7.25 is a strong support area and taking into account the current ATR of .50, we know that if it falls bellow $7.25 it has violated both major support and the daily range and we need to get out of this stock.

I hope this has given you all some new ideas and helps your trading in some ways. If you have any questions or comments please post or email me. Also for my most current stock picks check out my profile at SocialPicks.

Types of Stop Orders

Hello everyone, thanks for stopping by and reading my blog. Its been a rough day and I hope none of you lost too much money. If so keep your head up and remember it cant go up everyday.

Today I would like to continue my series on placing stops by going through the different types of stop orders that can be placed. This may seem very basic for some of you but its something I see lots of confusion on, even for experienced traders.

Stop Limit Order:

A stop-limit order is an order to buy or sell a stock that combines the features of a limit order and a stop order. Once the stop price is reached, the stop-limit order becomes a limit order to buy or to sell at a specified price.

Just about the only benefit to a stop-limit is an investor can control the price that the trade gets executed at. The major problem with this type of order is once the stop is hit it turns into a limit. If we do not place the order correctly we may never get executed. Lets use an example: I have 50 shares of Apple and put in a stop limit order. I place the stop at $127 and then I place the limit at $127 as well. When AAPL falls it hits my stop and my limit order is placed, but if it continues to fall we will never get an execution because this order now being a limit we needed to see the stock stay at $127 or better. This is a common occurrence and it shows many people don't truly understand this type of stop order. To be used properly we needed to put the limit price some were under $127, say $126 and we would have been fine. As we go through the different orders you will come to see that the stop-limit order should never be used.

Stop Orders:

This is your plain old stop order. A stop order is an order to buy or to sell once the stock reaches a certain price. When this price is reached the stop order becomes a market order.
This is very similar to a stop-limit order however instead of becoming a limit order when the stop price is reached it becomes a market order. At first thought this sounds like a disadvantage, however the whole point of placing a stop is so we can get out of a falling stock quickly. I would rather loose a few more cents than never get a fill and loose even more money.
For those of us who watch the stock market very closely this is the type of order most prefer. The reason being is that we can place this at a specific price depending on the situation and we our always in control of the risk we are taking.

Trailing Stops:

You can think of a trailing-stop as the fire and forget stop order for those who don't watch every tick. We can think of a trailing-stop as a Ratchet we can move it one way but if we try to go back it will stop and won't let us. So as you can see this type of order will follow a stock up but if it reverses the stop will stay in place. The stop can be set to trail the stock by a percentage or dollar amount.
This is by far the most popular stop and one I suggest that everyone uses. By using the trailing-stop properly we insure that we never go from a winning position to loosing money.

Personally I would never use a stop-limit order, there is no benefit to its use and only sets you up to never get your shares sold. The normal stop order is to me the best stop a person can place and is the one I always use when opening an initial position. For the trailing-stop I place this order once my stock has moved up from the purchase price and I am concerned with locking in my gains if the stock should reverse on me.

I hope this has helped some of you understand the different types of stop orders that are available. Tomorrow we will go over a few ways you can employ stops successfully. Happy trading tomorrow and lets hope the market does a little better.

Importance of Setting Stops

Hello everyone and thanks for taking the time to stop by my blog.
Considering how crazy the market has been lately, placing stops is the most important and at the same time the most frustrating thing you can do.
I can't count how many time I have seen people take big losses because they never placed a stop when they purchased stock. By far the reason always given to me is "I hate stops I always get taken out of a trade at the worse time". Indeed this can happen and can be very frustrating but if we stop to think about it for a minute we realize that is the whole point of a stop. Yes I know sometimes it can be very frustrating but it will save you from loosing a lot of money as well.

Now there are many ways and theories to placing stops. In the coming days I will go over a few of the most common strategies and the way I try to limit my looses.

Until then just remember PLACE YOUR STOPS!

Gaps - How I Trade Them Part 2

Hey everyone thinks for reading my blog. I hope everyone is having a great week.
Yesterday I talked about Gaps and why I like them and also talked about what I look for in gaps. Today I want to talk about Up Gaps and how I trade them. I will start off by saying that trading up gaps are tricky and in my experience most are filled in a short time.
I look for the same things in a stock that gaps up as one that gaps down and again I will reiterate finding out why a stock has gapped and the seriousness of the news is key to making a profitable trade. With an up gap I always like to watch it for a few days and will only get in if I continue to see a trend to the upside. The markets natural reaction to gaps seems to be a reverse over the next few days, but if a stock can hold above the gap then in my eyes we are looking at a very strong stock that will continue to new highs.
I hope that these posts help all of you in some way. If you have your own way of trading gaps I would love to hear them. The next gap I trade I will go through it with you and you can show me my flaws and maybe we can all get a little better at making money!

Gaps - How I Trade Them

Hey everyone thanks for stopping by and reading my little blog. I want to talk about one of my favorite set-ups and that's gaps. One of the most uncertain and chaotic things that can happen in a stock is such a trading imbalance that it causes a gap up or down in the stock. As an individual this is a time were I have an edge over the big boys. The speed that I can get in and out of a stock allows me to trade these kind of setups without the risk that institutional traders would have to face in such a situation.
My favorite kind of gap is a bearish gap. I define a bearish gap as one that after gaping down is so weak that it cannot even make it back to the previous day low, intra-day. What this tells me is that something in this stock is really breaking down and the gap is just the beginning. I also look for ones that are up near there 52 week highs, if a stock gaps down after showing strenght for a long period, this further confirms to me that something has caused a major change and the trend has turned. After all of this I try to find the reason for the gap down, usually it will be a news item. Here you have to be very careful to make sure that whatever news brought it down is actually something that is going to keep this stock down. Earnings guidance is a good item to trade on but analyst downgrades is not. Once I have found a stock that meets my criteria I add it to my watch list and watch it, it may trade flat for a few days but if the stock starts to break down again this is were you need to get in. There are two ways to trade it, you can either go through the pain of selling the stock short and dealing with the uptick rules, or what I prefer is trading put options. If you are good with options then I would suggest options in this situation.

So that's how I trade gap downs. I will be back tomorrow with some tips on trading gap ups.
Thanks for reading and happy trading.

EMC Corporation (EMC)

Hey everyone thanks for coming by and reading my little blog.
After scanning the list of top of NYSE % gainers, I spotted EMC Corporation on there with a $0.10 gain on Friday.
This stock has been doing great this year up over 38% year to date!

I do not own any shares of EMC at this time.

I am rating EMC a Buy on there fundamental strength and the strong uptrend they have been in for the last few years. I would like to share with you my analysis of this company.

What does this company do?
The official description is:
EMC Corporation (EMC) and its subsidiaries develop, deliver and support information infrastructure technologies and solutions that are designed to help individuals and organizations handle their digital information needs. It operates in four segments: information storage, content management and archiving, RSA information security and VMware virtual infrastructure. They are in the Computer/Storage Device Sector.

How has this company been doing?

EMC released there 2nd quarter earnings report on June 30th. Revenue increased 19% to $6.10 billion. Net income was up 17% to $647 million..

Looking more long term we see that revenue has steadily increased from 6.24 billion in 2003 to 11.2 billion in 2006. Earnings have increased steadily from $0.25 per share in 2003 to $0.63 in 2006.

The company does not pay a dividend at this time. Number of shares outstanding has gone down a little at around 2.4 billion shares in 2003 to 2.1 billion shares in 2006. Only 1.97% of float is out short.

Current ratio is strong at 2.1. I look for anything over 1 to 1.5.

As you can see this company is starting to look pretty strong.

Valuation
Now for some valuation numbers current PE ratio is a good 29.5. PEG ratio is a good 1.27. Price/Sales ratio is 3.2, 91% greater than other company's in the same industry. Return on Equity comes in very strong at 11.9% better than 76% of company's in the same industry. Valuation wise people know this company is strong and are willing to pay a premium for that strength and growth.

The Chart
Looking at the chart we can see that this company has been in a very strong uptrend since September of last year. Right now were are right up against the 50 day ma but has not broken through. As long as we don't see a break through the 50 day ma it looks like the uptrend will continue.






All around this stock looks great, earnings are strong every quarter and are still getting stronger. If I were buying stocks today this is one I would be purchasing.

EMC CORPORATION IS RATED A BUY

To Underestimate The Probabilities Of The Impossible

You hear it all the time...."that will never happen its impossible". When you think about that for a moment you realize that in trading only an idiot would say such a thing. Unfortunately we all do at some point and even the top traders and top funds do it all the time. Lets take a look at a simple scenario: Suppose I somehow became a math genius and somehow worked at a top firm on Wall Street, and in a moment of genius I come up with a way to make $100 99% of the time, but in a small 1% chance I stand to loose $50,000. Would you run a system with that kind of odds? We can calculate this easily by using what is called the mathematical expectation. 99.9%*100-0.1%*50000=-401

As we can see even with such a small chance this system would still loose $401 a trade on average. This happens everyday, real traders blow up like this all the time and as we just saw even big funds do it to.
The moral of the story? Never underestimate what most would consider to be impossible, the impossible happens everyday.

Song Of The Day

Here is your song of the day



Long: Good test scores, a good reward for study
Short: Hysteria and greed

Were are we going?

After a a break to the upside, the market could not sustain it for long and we are falling again. As I said yesterday Goldman Sachs (GS) is a good indicator of where the market is going right now. If we break below 1429 we could be in for another wild end to the trading day.

Be careful out there.

Hedge Funds, Quants And Why The World Wont End.

After another down day in the market every talking head on tv is running around in a panic like the world is going to end....again. It seems to me that this happens every few years, a bunch of Hedge Funds start using some quant strategy that works 99.5% of the time leverage the hell out of it and then when that .5% comes around they blow up. I have a feeling we have a few more of these sort of days to go, but never fear in a day not so far away we will again only speak of how are market only goes up and volatility becomes "dead" again. So in short if your not an aggressive trader I would say stay away from this market, get back in when we get some really good days in a row. For tomorrow watch Goldman Sachs (GS) as they go the market follows if we see them crash again I have a feeling the market will quickly follow.

The Stocks I Am In

To put it simply I am in nothing! Considering the volatility and what seems like irrational behavior by the market I went totally into cash for the time being. The stocks that I talk about on this blog are stocks I would purchase but part of my trading philosophy is to never go against the market. They say something like 8 out of 10 stocks go with the market and considering my skill level I would probably loose 10 out of 10 times. I will however be buying stocks I have been writing about as soon as I see a sustained push upwards over a few consecutive days.
Now I am not going to predict when this market correction will end but I can say that until more hedge funds and other firms that have been buying these mortgages comes out and start telling us were they stand the market will continue to be nervous and sell off at every turn. I am glad to see the current move to take a look at the biggest firms to make sure that there not hiding looses and get this all out in the open so we can start moving forward.

When I do purchase and sale stocks I am planning on posting it here on the blog as I do it. One thing I cant stand is when blogger's don't tell us what there trading and when they do it. It is my hope that all who read my blog in the future will see my record and on the basis of my performance decide if I am worth reading or not.

Thanks for reading, be safe over the next week and tread lightly while this market continues its current hysteria.

Applied Industrial Technologies (AIT)

Hey everyone thanks for reading my blog. I hope all of you are still making money after a wild week in the markets.
Today I am going to be talking about Applied Industrial Technologies a company I found while scanning the list of top gainers on the NYSE. Friday they had a great day up 17.65% for the day.
This company just came out with some great earnings on Thursday and on a such a bad day the market completely ignored them. It seems on Friday people paid a little more attention and started buying into the stock.

What do they do?

Applied Industrial Technologies, Inc. is a North American distributor of bearings, power transmission components, fluid power components and systems, industrial rubber products, linear components, tools, safety products, general maintenance products and a variety of mill supply products. Fluid power products include hydraulic, pneumatic, lubrication and filtration components and systems. In September 2005, the Company acquired the assets of Spencer Industries, Inc., a fluid power distributor serving the western United States. The business operates as Spencer Fluid Power. In March 2006, it acquired Minnesota Bearing Company, a distributor of bearings, power transmission components and fluid power products. They are in the Consumer Cyclical/Auto and Truck Parts Sector.

How Are They Doing?
I always like to start out by taking a look at a company's latest quarter. This company just came out with there 4th quarter and 2007 year end results. For the year net income rose 19% to 86 million from 72 million the previous year. Net income for the quarter rose 22.2% and EPS for the 4th quarter rose 27.3% to $0.56 from $0.44 the previous year. Even after commenting on how the housing slump has affected there sales they still reaffirmed there guidance for 2008.

Taking a more long term look there yearly income has increased from 2.6 million in 2002 to 86 million in 2007. There EPS went from $0.34 in 2002 to $1.93 in 2007.
Next the amount of stock outstanding has been holding steady at about 43 million shares, something I always like to see. There net cash is all over the board, however considering the rest of the numbers it doesn't seem like to big of a problem. Taking a look at how well they have managed there debt we can see there current ratio is a strong 2.5, way over my minimum 1.0. They also pay a very nice dividend yielding 2%.

How Do They Compare?

Taking a look at how they compare to others in there sector we see there P/E is 15.06 compared to the industry average of 17.82 in 2006. Looking at there Price/Sale they came in at 0.55 compared to 0.76 for the industry. Also there ROE is very strong at 19.33% showing there better at reinvesting there earning then 86% of there competitors. These numbers tell me the street is undervaluing this company.
The Chart
Taking a look at the chart we can see they have been in an uptrend since March. Even after all this volatility they still managed to close above there 50 and 200 day ma. While the 50 day ma is not rising anymore I believe with the earnings they just released the stock will start another long climb.














Considering the fundamental strenght I believe this company has, if I was looking to purchase stock this one would be at the top of the list.

I Am Rating Applied Industrial Technologies (AIT) A Buy

Coca Cola Company (KO)

Hey everyone thanks for coming by and reading my little blog.
After scanning the list of top of NYSE % gainers, I spotted Coke on there with a very nice $1.47 gain today.
This stock has been on a tare this year up over 8% on the year!

I do not own any shares of KO at this time.

I am rating KO a Buy on there fundamental strength and the strong uptrend they have been in for the last few years. I would like to share with you my analysis of this company.

What does this company do?
I am sure we all know what Coke does but the official description is:
The Coca-Cola Company manufactures, distributes and markets non-alcoholic beverage concentrates and syrups. It manufactures beverage concentrates and syrups, which it sells to bottling and canning operations, fountain wholesalers and some fountain retailers, as well as some finished beverages, which it sells primarily to distributors. The Company owns or licenses more than 400 brands, including diet and light beverages, waters, juice and juice drinks, teas, coffees, and energy and sports drinks. It also has ownership interests in numerous bottling and canning operations. Finished beverage products bearing the Company�s trademarks are sold in more than 200 countries. As of December 31, 2006, the Company operated through eight segments: Africa; East, South Asia and Pacific Rim; European Union; Latin America; North America; North Asia, Eurasia and Middle East; Bottling Investments, and Corporate. In June 2007, the Company completed the acquisition of Energy Brands, Inc., known as glaceau.

How has this company been doing?

Coke released there 2nd quarter earnings report on July 17th. Earnings per share came in at $.80 up from $.74 in the 2nd quarter of 06. Net revenue was up 20%.

Looking more long term we see that revenue has steadily increased from 3.96 billion in 2002 to 5 billion in 2006. Cash flow has been a little erratic as of late going from 2.2 billion in 2002 to 6.6 billion in 2005 to 2.4 billion in 2006. Earnings have increased steadily from 1.61 per share in 2002 to 2.22 in 2006.

The company pays a good dividend at $0.34/share. Number of shares outstanding has held pretty steady at around 2.3 billion shares for the last 5 years. Only .92% of float is out short. Good to know everyone else thinks this is a strong company to.

Current ratio is strong at 1.90. I look for anything over 1 to 1.5.

Valuation
Now for some valuation numbers current PE ratio is a good 24.8. PEG ratio is pretty high at 2.27 I usually like to see something lower than 2. Price/Sales ratio is 4.93, 70% greater than other company's in the same industry. Return on Equity comes in very strong at 29.10% better than 87% of company's in the same industry. Valuation wise people know this company is strong and are willing to pay a premium for that strength and growth.

The Chart
Looking at the chart we can see that this company has been in a very strong uptrend since March. We had a pullback in late July to the 50 day moving average but has now broken through on strong volume. Technically speaking this chart looks great.













All around this stock looks great, earnings are strong every quarter and even after they grown this big they are still moving up. If I were buying stocks today this is one I would be purchasing.

COCA COLA COMPANY IS RATED A BUY

My Stock Picking Approach

I am currently refining the way I pick stocks. I hope to use this blog to journal my successes and failures as I look for the best approach for me. So without further addu here is how I pick stocks.

1. I look at the top gainers of the day on the NASDAQ and the NYSE. I do this because I am looking for stocks that have momentum and are on the move.

2. I go down the list looking at each stock, first looking at there latest quarterly earnings, then followed by a look at the past 5 year fundamentals.

3. A look at the charts. I look for a company that has been in an uptrend and most important the 200 day ma and the 50 day ma our both moving up.

4. Once I find a stock that meets this specific criteria, (I will detail more what I look for in further posts) I purchase shares of said stock and immediately place a trailing stop somewhere between 5% and 10% depending on the volatility of the stock.

Thats pretty much the basic philosophy I have. I will detail in further posts the specific things I look for in picking a stock and also my money management rules.

Welcome

Well with this being my first post, I am going to give you a little background info on who I am.
My name is Brandon, I live in Farmington, Utah and I am 26 years old. I am a licensed broker at E*Trade Financial, in there stock plans department. I have one child a little girl name Allyson, and my wifes name is Kristen.

The objective of this blog is to share with you my ideas on the stock market in general and also my trading philosophies. I plan to make stock picks and use this as my trading journal so you will see every trade I make.
The good and the mostly bad.