I recently had the opportunity to hear Scott O’Neil speak to a group of stock traders and investors. Scott is the President of MarketSmith and one of the sharpest portfolio managers in the business. Over the 2-hour talk, he covered many topics. Here are a few lessons that should serve as great reminders to all traders.
1) Entry point is critical. Scott described his entries as “laser focused.” You should enter a position when it begins to emerge from a proper technical base. If you don’t use “low-risk” entry points, it’s likely that you’ll get tossed around in your stocks, especially during “choppy” markets.
2) Don’t chase! Scott says one of the biggest problems for traders is chasing a stock AFTER it’s too extended from a proper buy point. Why do so many people do this? Probably fear or greed. Fear of missing out, or fear of watching a stock go higher without you. This point goes back to having a strong entry point. If you miss out, LET IT GO! There will be plenty of opportunities in the future.
3) You should have your A and your B stocks. What this means is you should know the difference between the stocks you might play for a bigger move, and the ones that are strictly shorter-term trades. I think the ability to tell the difference between the two comes from experience. Over time, you’ll figure out which stocks to use in certain situations.
4) Use Weekly charts! Every chart Scott pulled up during his presentation was a Weekly chart. Too many traders get caught up in looking at such short-term time intervals that they lose track of the overall picture. In addition, it’s easier to evaluate volume using Weekly charts.
5) Be patient! Although the market has been strong this year, it has not been a crazy momentum market. It takes time for moves to play out so it is extremely important to be patient with your positions. Going back to point #1, having a strong entry point can help with being patient, especially when you are at an immediate profit.
As I mentioned earlier, Scott spoke for 2 hours and covered many topics. These were just a few that stuck out to me. Whether you’re a novice or experienced trader, these points can serve as great reminders and valuable lessons. Good luck trading!
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