My trading strategy

Hello again, FF&UP.

Before we jump into my journal on specific trading activities, I thought it might be good to detail my trading history and philosophy. Again, since I don't expect many readers for this blog, this is just as much to clarify my mind as it is to inform you.

As I mentioned in my introductory post, I purchased a stock trading course from Stockscores (http://www.stockscores.com/) a couple of years ago. I came across this course when I was selling online advertising for The Globe and Mail, Canada's #1 National Newspaper. (To all you National Post readers, my Dad included, let's be honest...the Post is a rag. It just uses smaller words so its redneck readers are more comfortable with its propaganda.)

(I love senseless rivalries by the way, don't you? What better means to throw out hateful yet harmless insults freely? While we're at it, Leafs, Flames and Oilers suck dangling horse parts! It looks like this will not be a family friendly blog, after all.)

Anyhoo, the founder of Stockscores, Tyler Bollhorn, wanted to buy advertising and I was his sales rep. I went and saw him speak at an introductory course and bought into his trading philosophy because it seemed to solve my problems from Lesson #1 (see below). So much so that I plopped a bunch of my sales commission that quarter (including all of the proceeds earned from the Stockscores advertising) down on the Pro course. You're welcome, Tyler.

With the Pro course came a big book of theory and instruction plus one year's access to the Stockscores website and one year's subscription to the daily newsletter sent by Tyler himself - I have since re-subscribed to both of these. I promptly threw $5000 into a BMO account and tried my hand at trading. I kind of forgot to follow all of Tyler's advice and saw that $5000 dwindle down pretty near to zero. We'll call that Lesson #2.

Lesson #1, for the record, came during the tech boom many years ago. Man that was exciting. All that trading of companies I had never heard of for no discernible reason. I remember making a 40% return on one trade in one day. Onvia.com. I will never forget that feeling of exhilaration. It had me hooked. So hooked I watched all of my money disappear chasing the dragon. I like to say I saw more Chapter 11s than the Bible. As far as I know I wrote that little joke. I'm keeping it.

By the way, the lesson learned was "don't trade indiscriminately, without a plan or knowledge. It really is just like gambling and, just like in Vegas, you are going to lose."

So Lesson #1 is firmly in my data bank. What was the lesson from Lesson #2? "If you have a strategy from an expert, stick to it!" The main components of Tyler's teachings that I ignored were:

1. Control Your Emotions,
2. Plan Your Losses,
3. Don't Enter a Trade Unless it Meets all Criteria for the Strategy.

Anyway, those are the things I remember doing wrong although I am sure there were many more.

So here I am, blessed with free time to study my course material again and watch the market more closely than when I was stuck in a job. Somehow I found $3000 to begin Mike's Stockscores Trading Journey 2.0.

Unlike my first Stockscores Trading Journey when I traded through BMO Investorline, this time I am trading through Trade Freedom. This is the trading platform provided through Scotiabank and its chief advantage over BMO is that it has a good trading platform (TradeFreedomEdge) with real-time quotes and charts. Since charts are the most important component of the Stockscores method, this really is an essential tool. For whatever reason I could not find one through BMO (sorry, Eric.).

So, $3000 in a Trade Freedom account, the charting program loaded on my laptop and a recent review of key Stockscores course materials (both from the instruction manual and from the online instructional videos at the website). I am off and running!

Now this may seem like an awful time to get into the market and, you know, it just might be. But from my perspective, this is a great time to jump in. There is a lot of volatility in the market and if the indices are any indication (what a redundant redundancy!), we're nearing or have reached the bottom.

The Stockscores philosophy, by the way, focuses upon trading on technical indicators rather than on company fundamentals. Let's take Company X, for example. It makes and sells a product that everybody uses and will continue to use for the foreseeable future. A trader on company fundamentals such as Warren Buffett might see this company as attractive. They might buy the stock and hold it for several years. We have to look at fundamental trading as trading done because a company itself looks good and you think its stock is likely to rise.

Technical trading on the other hand uses the movement of the market to identify stocks worth buying. Trends, indicators, etc. It doesn't matter what the company does, it simply matters what the stock is doing and how the market views it.

Stockscores is focused on technical trading and, therefore, so am I. If you happen to read this blog and say, "Mike, you should buy Company Y because it has a great product that is sure to be in demand in the future." I will say, "thanks but let me look at the chart."

The chart is our guide. The chart tells us if the stock is likely to move higher or lower. Using rules grounded in observation, we can anticipate the movement of many stocks based upon familiar chart patterns. The Stockscores approach helps us identify which stocks are following predictable and probable patterns and then we buy or sell based upon these probabilities.

There are many different predictable chart patterns covered in the Stockscores course. The course helps you identify stocks to watch and then observe signals on when to enter and exit. Follow the rules and profit. Really, it is that simple.

But as Tyler says (and so many other people say it, too), "It's simple but it ain't easy." It ain't easy because of our emotion and our ego. Our emotion makes us do stupid things out of fear or greed and our ego tells us we know better than the rules, so we do stupid things. See Lesson #2 above.

There are a number of different strategies in the Stockscores Approach - strategies that fit up markets, down markets, volatile markets, etc. In addition, there are strategies for the different time frames you might want to trade - position (longer term), swing (medium term) and day (short term) trading. This depends mostly on your ability to watch the market and I would postulate that the upside is higher with shorter time frames. We'll see, I guess.

For now I am mostly going to focus on Swing Trading Strategies, strategies that include hold periods of 1-7 days from buy to sell. In time I plan to adopt some Day Trading Strategies when I get more proficient at the whole thing.

Just in case you are wondering, I am limiting myself to Buying Long for now - that is, buying a stock expectant that it will go up. I might get into Short Selling and Options Trading later but let's follow Bob's lead and take baby steps to the back of the bus for now.

Okay, let's move on to a review of my trading.

Ciao for now!
Mike The Happy Trader