I can start by telling you mine. I am always looking for RUNNER! Yes! A stock that can run.
‘Yeah, yeah, so do we all” you said.
“Well, how do YOU look for the runner?” I counter.
Alright, I’m not going to get into a small argument that may lead to a physical fight and then have my ball squeezes till I turned blue on my face and bid this life farewell in the most unpleasant way… Instead, I’m just going to tell you how I do it. If you don’t agree; it’s a free country and you are ALWAYS right! Yes, I’ve given up the sacredness of being right. When you think about it, what is the whole point of “being right” anyway? What do you get out of being right? A feeling of superiority? A feeling that you are in control of your destiny ’cause you are right about a thought that appeared in your mind. If you say yes to these questions, then you are also subscribing to the belief that when you are wrong, you are no longer in control of your life and you must appear foolish… Wow, that must be a LOAD for your EGO. “No F__King WAY!” the ego will scream.
Guess what, we are NEVER really in control of our life; we are merely an insignificant part in the whole scheme of thing that is significant. Yes, a double-sided irony! Of course, what I just said is all baloney ’cause you are right in your judgement! I don’t know what is the hell I’m talking about… Ok, enough of my being wrong, let’s get back to the purpose of my post…
What I look for is a stock with a great story! If it has a fantastic story, the stock will have the propensity to RUN. Forget high P/E; forget the poor balance sheet; just focus on the validity of the story. If it has enough substance, it will RUN.
“So, how do you find the runners?” You inquired with a readily hammer to pound.
These days, they are ALL over the place! Seem like the most recent trend is Social Media… and you can always find them in technology. Names like AOL, Netscape, Microsoft, the dot.com of the hey day were great runners. Oh wait, there is always a story stock in BIOTECH! And that is why Biotech is always a part of my trading arena.
“You are not telling me thing I don’t already know!” Your hammer is probably inched closer to my head…
Wait! What most people forget is that despite the story stock having the propensity to run, it can also simply be a story stock with a propensity to FAIL. Yes, remember Netscape? How ’bout Commerce One? Commerce One went from IPO price of $30 to $900 without making a single dime in their business model. I felt bad for those who kept on shorting the stock while it ran all the way up to the stratosphere; imagined their faces turned blue… and for those who were holding the bag when it went to zero.
Do you see the allure and the danger here?
That is why you MUST master the art of chart-reading! To me, chart-reading trumped fundamental hand-down. I ALWAYS listen to the chart ’cause it is a DIRECT message from the market. The chart give you clue on demand and supply of the stock you are looking at. If demand is high ’cause the story reaped of validity, it will RUN.
But there is a CATCH! All runner will also crash and burn before it will run again (if ever). That is why you MUST learn to take profit with profit target. Yes, you can miss out the rest of the run; but at the same time, you are also spared from the crash that literally eliminated all the paper gain you used to hold dear to your chest.
REMEMBER, PAPER GAIN is just that- paper. A worthless number in your broker account until it becomes a part of CASH balance.
Bottom line, when you find your runner, don’t just buy and fall in love with it. You must trade it according to the chart. Average up with the trend (not the other way as in averaging down). If you go with the flow and direction of the price movement, runner can be extremely profitable. And you need these profitable moments to offset all losses (keep them small!) from those fake runners that pooped out.
In other words, in the world of trading, you must acknowledge that you can be WRONG again and again. Playing runner is high risk; so go ahead, hit me with the hammer. I’m already wrong by suggesting that it is a profitable way to trade.
Categories: Trading philosophies and thoughts