Stock Market Trading - Without the Stress!

Ron wrote

I just got sucked into this. So I am posting what I paid for.

The Practical Momentum Trading Course
Riding the Rally and Reducing Risk
Stock Trading

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INTRODUCTION
Keeping it simple.

There can be several ways to make money from the stock market, but like with any business activity you need to focus on a simple way that is able to produce you consistent positive results.

The best traders specialize on a small number of stocks and indicators that help them keep their trading as simple as possible. The best traders avoid trading or stay on the sidelines when they don't see a solid enough reason to make a trade.

Our strategy focuses on how to recognize stocks that are poised for big moves as a result of important catalyst events.

Not all catalyst events have the possibility of influencing the price of a stock. That's why part our strategy helps you choose the type of catalyst events and news stories to focus on.

Another factor to take into account is that not all companies react as good as others to similar events or news releases. With the help of our strategy you can identify the type of companies and stocks with greater possibilities of responding better to certain kinds of news.

The stock market is in large part about news and expectations. News is what moves the markets. There is an old saying that tells you to buy on rumor and sell on news. In our opinion this is a vague approach for the day trader. In fact it is also very dangerous since no one with out insider information can know the future prospects of a company.

There maybe some people that would want you to believe in rumors and try hard to convince you about that theory, especially the ones who are 2 or 3 steps ahead of you and that stand to make a profit from you. Shady rumors most of the time turn out to be lies that can adversely affect the price of a stock.

On the contrary, many times a positive fresh news story will not only help the price of a stock move up immediately after the news is released and trough out the same day, but it can also help initiate an up trend for a given stock in the days to come. To many up trends these days are initiated on some kind of previous positive news release or catalyst event.

In essence certain kinds of catalyst events have the possibility of brightening the near future of a stock, thus making it more attractive as an opportunity for other traders and investors as well. Our goal is to help you understand what catalyst events to focus on, what type of stocks to look for, where to search for those stocks and events as soon as they get released, how to trade on such news limiting your risk by using the right strategies and the proper mindset, and give you recent examples of stocks that could have been traded using our strategy.

NOTE:
The following is copyrighted material. No part of this information can be reproduced or distributed in any way with out the written permission of the authors and publishers.
This system is designed to provide a method and approach in regard to the subject matter covered. Use is granted with the understanding that the publishers and authors are not engaged in rendering legal or financial advice. If expert assistance is required, the services of a competent professional should be sought.

CHAPTER 1-
WHICH CATALYST EVENTS TO FOCUS ON

There are many of types of catalyst events that usually help the price of a stock go up as soon as they are announced. The most important are the following:

1- Outstanding contract awards

2- FDA approvals

3- Positive results in 3rd phase clinical trials

4- Other Governmental agency certifications and approvals

5- Patent awards

6- Litigations

7- Certain Analyst Upgrades and Index Additions

8- Buyouts.

9- Company Expansions

10- Certain external news that can affect a company.

1-Outstanding contracts awards.

As a beginner and to make the most out of your dollars focus on small companies listed on the Nasdaq with a price per share that ranges from $2 to $20 and a daily average trading volume larger than 300k shares.

New contracts and deals can be divided in 3 categories:

a) Contracts with the government

b) Contracts between a small and a bigger company

c) Joint ventures and distribution deals

2- FDA approvals.

A long awaited FDA approval clears the way for a company to start the marketing and commercialization activities for its drug or medical device across the United States. Some times a company has to wait a few years until it gets an FDA approval so you can imagine why this is a big event, especially for a smaller company listed on the Nasdaq that was depending on the FDA approval to start making money or seeking lucrative partnerships with bigger companies in the USA.

In some occasions once a company gets FDA approved, more news may follow in the coming months about the signing of new business agreements for the sale of its drug or device.

As a rule you should include in your stock watch list any small company that has just been cleared by the FDA, since you might here more good news in the near future.

On the contrary, stocks that have been denied an approval by the FDA become natural short selling opportunities.

When a company issues this kind of bad news it's stock can plummet dramatically in a matter of minutes and initiate a down trend that can last several days to several weeks. Profitable trades can also be accomplished this way.

3-Positive results in 3rd phase clinical trials

This kind of event could mean that an FDA approval is near and helps create awarenes for the stock among new traders.
Positive results in clinical trials usually help initiate uptrends. On the other side, the anouncement of negative results on a clinical trial can adversely affect the price of a stock.

Short sellers take advantage of this scenario because it can mean that the FDA approval will take longer than expected or could never come.

Small companies that have just one product and depend on the FDA approval to start their commercialization activities are the ones who usually get more hammered by this negative news.

4-Government agencies certifications.

Watch closely the ones given out by the USDA and the FCC here in the USA. They are not always as powerful as an FDA approval but some times they can boost the price of a stock to higher levels.

Also pay attention to approvals from similar organizations to the FDA in other countries like the European Union for example, since they also clear the way for a company to start marketing it's product in a determined region.

5- Patent Awards

Patent awards are not always good news in terms of boosting the price of a stock short term. It depends on the kind of company and the industry it's in. If the company belongs to a hot industry of the moment, a patent award has pretty good chances of making it fly during the day.

Be wary of companies that their best news is most of the time only about getting a patent award. You want to see companies that have a news history of getting contracts for the products they patented in the past.

Stay away from companies that apply for patents just for the sake of patents and never sell anything at all.

6- Litigation Winners

Focus on litigations where the winner company is awarded a multi-million dollar lump sum by another. This news works better when a small company is the one getting paid by a larger one.

In case both of the companies involved in the litigation are of the same small size, then the one who lost and has to come up with the payment becomes a good candidate for short sellers.

7- Certain Upgrades

Most upgrades are tricky. Watch closely especial upgrades and substantial new price targets given out by a recognized analyst house to a small company. Consider them when they change their opinion from sell or hold to STRONG BUY and during market hours. It is possible to watch a solid rally when this occurs.

Index Additions can mean that institutional investors could place more confidence in a stock. You must trade such stocks with caution and with out overestimating them your self.

8- Buyouts.

This kind of catalyst event will surely increase the price of the stock of the purchased company, if the purchase price per share is higher than the price per share before the buyout. The only problem with this kind of event is that the company that is being bought can halt the trading of its shares before the news is released, making it impossible for new traders to jump in and profit on such news.

9- Company Expansions

When a company announces that it will be opening another plant or expanding operations to another country it's usually a good sign that could give confidence to investors.

It's very important to read the whole news release to learn every detail about this event. If you are not able to interpret this news fast enough, then avoid it. Also, pay attention to the size of the market or the country where they are expanding. Big markets like China or rich countries like the UK might help this news shine even more.

10- External News

It is possible to have general or national news stories that can affect in a positive manner the price of a company's stock. Take for instance the "mad cow scare". When it first hit the wires back in the winter of 2003 there where a group of forgotten stocks that suddenly came out benefiting from this terrible event. Other stocks especially the one's of companies that where dealing with red meat and cattle, got affected by it in the short term.

News stories to avoid for "long" trades:

You will notice that most of the news that hits the news wires doesn't relate to a real catalyst event. Such kind of news may fall in the next categories:

1-Fluffy Press Releases where the company is not talking about facts or new sales, and just tells you about how it hopes to accomplish something in the near future or is plainly pumping it's "incredible new hot product".

2-Contracts awarded to large NYSE multinational corporations such as AT&T getting a billion dollar deal with the government or PFIZER getting another FDA approval. These kinds of news stories -although positive in nature - usually don't boost the price of a stock in an important way at least in the short term for those kinds of big companies.

3-Non monetary awards such as "best small company of the year" or "technology of the month" given by an industry association or a business related magazine.

4-Earnings releases. These are tricky and can take a lot of time to interpret. Many times you will see a very attractive headline such as "Company XYZ improved earnings by 20%" or "Company ABC beats Q4 and Full Year EPS Estimates, blah blah blah", and still there is some kind of bad news implicit in the rest of the release. As a beginner you should avoid this kind of news.

5-As a rule avoid all news relating to Pink Sheet Stocks and any other OTCBB stocks with a price per share of less than $1.00. It doesn't matter in what exchange they are listed. Just avoid them as much as you can. There can be stocks with good potential in this category especially if they are still listed in the Nasdaq, but be wary of them and watch them for a while before you decide to act on their news. In the winter of 2003 several stocks priced below $0.50 that belong to hot sectors such as VOIP, nanotech and defense to mention a few, started to react positively on news. This is not always the case.

6- News about Private Placement Deals
A private placement deal (PP) occurs when a public company announces that a group of private investors will buy a determined amount of its shares. These kinds of transactions are usually for several million dollars.

The company that is selling its shares normally says it will use the money from the PP for its own investment purposes. The problem with this kind of news is that most of the time the given company will sell its shares to the private investors group below current market price.

So for example if the price of the stock is $7 before a private placement deal is announced, and the deal says that the group of private investors will buy 3 million shares at $6.50 a piece, then you can be sure that the price of such stock will plummet as soon as the news hits the wires to near the $6.50 level.

This kind of news opens a good opportunity for short selling traders who want to profit from a large decline in the price of a stock. Just remember that not all stocks are available for shorting at all times. Your online broker needs to advise you which stocks are open for shorting.

Also, when you look to make short trades you need consider that you can't short a stock while it's on a down tick. By rule you can only short a stock while it's on an uptick or on a zero plus tick. This means that you can only short when the price of a stock suddenly moves up a bit or at the same price level while it's falling.

CHAPTER 2-
WHAT COMPANIES TO LOOK FOR

One of the most important factors you must consider is what kind of company is getting the good news.

Is it a large multinational corporation? Is it a pink sheet stock?, Is it about a penny stock priced at $0.16 a share? Is it a high tech or a low tech company? Is it a company associated with the failing dot bomb sector?

This is issues are very important. When trading on news look out for a company's size and trading volume also. By company size we mean valuation and by volume we mean how many shares does it normally trade on a daily basis.

Nasdaq listed companies with a valuation of less than $500 million dollars and priced between $2 and $30 per share tend to get more out of their good news. Such companies are still small and their price per share is perceived as still having room to move up.

For example if Company A has a market value of 200 million dollars and a price per share of $4.5 and announces a new contract worth $5 million dollars, the price of its stock stands to benefit more on such news than it would for Company B with a $5 billion dollar valuation that brings in the same dollar value contract.

Pay attention to trading volume because a stock with low daily volume will usually have bigger spreads between the bid and the ask. Less volume also means it's more difficult to get in at a fair price and tougher to sell or find a buyer when you want to get out.

Before you make a decision to trade based on a catalyst event, it's worth to look at the one year chart of the stock you are interested in, not because we endorse TA, but just to see what the stock has been doing previously and where is it coming from. Try to answer these 3 simple questions:

1- Is it in a downtrend? Maybe its because they have had a series of bad news in the prior months. If so stay away and watch the price action and take notes.

2- Is it in an up trend? This could mean its recovering or moving in the right direction and that the latest catalyst event is basically contributing to improve its near term prospects.

3-Has the price been basing for a while? This could be good but you also have to consider that it's probably a forgotten stock that hasn't showed any significant news developments in the near past. If so you can decide to stay away, because many times stocks that fall into this category have low volume because only a few traders care to follow them. Low volume can mean bigger spreads and a difficulty to get in and to get out.

OTCBB Stocks and Pink Sheets Stocks
As a general rule stay away from stocks that are priced below $1 especially if they are OTCBB stocks or pink sheets stocks. They are not worth your effort. Most of the time these types of stocks are heavily diluted with an incredibly big float, which means it takes a lot of buying volume to make them move. It's not unusual to see stocks in this category that might be priced at $.67 for example and just go up 1 or 2 cents after an apparently good news story is released. Trades for OTCBB stocks and Pink Sheet stocks usually execute slower and you cannot put a market order in case you want to sell faster to take profits as soon as possible.

An especial case would be OTCBB stocks that are priced above $3. They can become potentially good trading opportunities only when an exceptionally good news story hits the wires, like for example obtaining a big contract award from a billion dollar NYSE multinational, or when receiving several million dollars as a result of winning a litigation to a bigger player.

Another special case would be stocks under $1 that are still listed in the nasdaq. Make sure their average daily volume is superior than 300k and that their news release is worth it, such as the anouncement of a contract with a bigger company or a government agency. Only consider such kind of news when its released during market hours. Try to buy as close as the last price before the news was released.

CHAPTER 3 -
WHERE TO SEARCH FOR CATALYST EVENTS AS SOON AS THEY ARE ANOUNCED

A) Free sources on the Internet

BusinessWire.com
PRNewsWire.com
PrimeZoneMedia.com
MarketWire.com
StarMine.com
Dow Jones News wires

B) Other sources on the Internet and TV

A) Free sources on the Internet

Business wire and PR News Wire are very similar in the sense that most of the Nasdaq, NYSE and AMEX listed companies chose them to distribute important news.
An issue you should take into account is that you must refresh the pages by your self every 30 seconds or so in order to retrieve the latest news story that hits the wires.

Prime Zone Media and Market Wire usually showcase news from OTCBB companies more often than the others. You must refresh the pages as frequent as possible.

The Dow Jones News Wire is a service that you might be able to get for free with your online broker. The positive thing about the DJNW is that it compiles news from different sources such as Business Wire and PR News Wire. Their system is lively feed, so you don't have to refresh the pages your self in order to retrieve the latest news.

Other sources:
Briefing is another good source for related news stories but you have to pay for it. They are not a news wire service; they pick up stories from the news wires and other sources. They have their own criteria when it comes to choosing the stories they will publish. What a trader must take into account is that some times a positive news story that appears first on a newswire such as Business Wire and then again on Briefing can get more attention amongst traders watching the same story and therefore create a very good move. You will notice that Briefing usually publishes a story between 1 and 3 minutes later than on a news wire.

Some traders like to wait for Briefing to publish the story to decide whether or not to make a trade. The only problem with this method is that the longer you wait for the news to appear, your stock in question could be going up higher leaving you out of what could have been a good trade.

CNBC can some times be another source for related news that has not appeared yet in the news wires. Sometimes CNBC will interview the CEO of a small company or make a small mention of a high tech company with an interesting technology. If the brief mention is positive you might see the price of the stock go up while their airing the story, but only to fall down as soon as the TV mention is over. As a beginner you should only watch and learn how the price of a particular stock does when they mention it on CNBC. Once again just watch the bid and the ask action on L2 and the Last Sale screen until you feel comfortable trading on CNBC news if you ever feel its necessary.

In essence your most important sources for fresh company catalyst events are the established news wires. You really don't need to pay for an extra service or watch TV in order to profit from the news. The most important thing is to get the news as fast as you can in order to make a buy or avoid decision as convenient as possible.

CHAPTER 4-
HOW TO TRADE THE CATALYST EVENTS

First of all make sure you are using at least an online broker that gives you access to a Streamer, a Level 2 system, Last Sale screen and Charts. Don't even think of trading on a news story if you plan to do it by phoning your broker. It won't work. I know that many people have switched already to an online broker system, but in case you haven't done so you better start doing it as soon as possible before you trade with our strategy. This is because in case you made the decision to buy, then the faster you are able to execute a trade the better.

Secondly never jump in and trade a strategy until you have tested and experienced the details with each type of news. Paper trade for at least 3 weeks until you feel comfortable to make real trades. While you paper trade watch very closely the L2 action and the Last Sale screen action for every stock that just released news.

After you finished with this 3-week period of paper trading the next step is to start placing real trades with smaller share lots in order to put less money at risk. Wait until you make at least 10 profitable trades to increase your trading share lots. As always never trade an amount of money that you don't have or that you can't afford to lose. And forget about trading using margin. Especially if you are able to get a 4 to 1 leverage. It's a double-edged sword.

As a beginner when using this strategy if you see a very good news story such as a large contract award for a Nasdaq stock that is currently priced at $2.5 a share and you think it has the potential of making a one point rise after the news hits the wires, you can decide to place a buy order for just 300 shares. If it goes near $3.5 as expected you will make a cool $300 (less commissions) with out risking to much money.

Remember, only after you have accomplished your first 10 profitable trades in a row you can decide to increase the size of the share lots you trade, but still do it gradually. Using the same example of the $2.5 stock if you decide to buy a 1000 share lot and sell it at $3.5 this would give you a decent $1000 profit.

When you get to the point of being comfortable with trading bigger share lots, obviously your profits per trade will have the potential of getting bigger. This way you have the possibility of making more money a month with fewer trades. In the long run this must be your goal. There is no reason to picture your self as a trader that MUST be all day "watching the markets" and over trading like crazy ten hours a day just because "that's what a trader is supposed to do".

Trading is not a job. Think about it as a business. The bottom line in this business is to make money for your self to enjoy life as much as you can and not to "spend all day watching the charts and the markets". So don't let your stock trading become another rat race. Never let your trading business get to the point where you are glued all day to the monitor and over trading just to end up making your online broker richer than you with your efforts. Every round trip trade nets your online broker around $20. If you make 10 round trip trades a day your letting them go with $200 a day or $4000 a month. Think about it.

Time Frames for Trading News Stories, pros and cons

Trading News in Pre Market

A lot the good news stories are released in pre-market hours. This means that if you live in California and want to trade in pre market you can place trades since 5:00 am in the morning or 8:am if you live in New York.

The problem with pre-market is that not many investors and traders can or want to trade at such hours, therefore there is less of an audience to do business with and as a result the spreads between the bid and the ask can be bigger.

For example if a given stock that closed the previous trading session at $3.10 releases positive news 30 minutes before pre-market starts, by the time pre-market opens this stock could have an asking price of $3.70. In this case you should wait and see because the asking price is so high that it might not continue going up after they take out that order. If it does go up then watch closely the L2 action and look at the quality and quantity of the bidders willing to support the new high levels of the stock.

When trading the news in pre market what you preferably want to look for is for stocks with narrower spreads and an asking price that is as closer as possible to the previous trading day close. So instead of seeing an asking price of $3.70 you would look for an asking price of $3.12 or $3.15 and also a good amount of bid orders pilling up on the L2 screen and just a few small ask orders suggesting little resistance to let the stock keep moving up.

Stocks that trade more than 1 million shares a day are ok to trade on a good enough pre market news story since they are widely followed and their spreads will usually be smaller. On the other side, forget about trading stocks in pre market that trade an average daily volume of less than 300 k shares. Your risk will be higher since their spreads will be higher. Rarely you will see a low volume stock with a narrower spread in the pre market session.

-One thing to consider is that in some occasions a stock with news won't have any action at all in pre-market, but it can still represent a good trading opportunity when the market opens as long as you buy using a limit order at a price that is as close as possible to the price before the news was released.-

As the pre market session finishes and the official market open approaches more and more traders will wake up and turn on their computers to start trading, which means that there will be more people to do business with. If you rather wait to start trading until the market opens to avoid the mentioned risks or simply because you have better things to do earlier in the morning then just ignore considering trading in pre market. Just remember you can get very good news stories in that session. You just need to be careful.

Trading news during market hours

As you know the Market opens at 9:30 am ET. The first half hour is usually the most active for the whole market. Every body is usually busy and nervous and the news wires give you all kinds of good and bad, important and unimportant news stories, each of them competing for the same audience.

In some occasions it is wiser to wait until 10:am ET to start considering news releases with potential. By that time many traders have liquidated at a profit or loss their previous positions of the first half hour and many of them are looking forward to consider the next potential big mover. In other words more traders are paying attention to the news. Usually a good news story that is released between 10:am and 12:pm can benefit from less information competition getting the chance to shine a lot more than if it was released at the open when every body else is busy looking elsewhere.

Lunch hour is for lunch so simply avoid trading at that time. There are less people to do business with and you should use this time to get a nice meal or get another cup of coffee and go for a walk. If you already made money earlier in the morning, consider shutting down your computer and calling it a day.

The less you trade as well as the less you spend in front of a computer the more energetic you can feel the next day. Don't worry if you miss a good news opportunity. The good thing about this strategy is that you will most likely get to see more good news from another company the following day.

If you decide to continue waiting for another news opportunity the remaining three hours of market hours could also present you with interesting news stories that some times have the ability of producing solid rallies into the close. A good news story released between 1:pm and 4:pm ET, like for example a big contract awarded to a small company, can get a lot of attention from traders especially if the market has been relatively "quiet" since lunch hour up until then.

Trading News on AH

As the market closes at 4:pm ET you start getting an incredible load of news stories that most of them won't interest you for trading purposes. Still there are some occasions when a company will release a solid news story in the after hours session such as an FDA approval or a company buyout. Take into account that as the after hours session goes by there will be more traders logging off their computers and therefore you will have less people to sell to or buy from. The spreads will also start getting bigger in AH's.

Trading Tips

Regardless of the time frame you decide to trade always try to buy as cheap as possible when a great news story hits the wires. Usually you can get a reasonable price immediately after the news is released. Always use a limit order to make sure you wont be paying more than you thought so.

Just like in the pre market trading example that we gave you, always look for stocks with narrower spreads and an asking price that is as close as possible to the last stock price BEFORE THE NEWS WAS RELEASED.

Before you buy always look closely at the Level 2 action window and get a feel of how many potential new buyers are interested in the stock by looking at the bidders and also how many askers or sellers want to get out and at what prices so you can determine the potential resistance to an eventual rally.

If by looking at the L2 action you determine that there are more sellers than buyers or that there is a big seller that might cause a lot of resistance and kill the rally, then wait until they take him out. If they don't take him out, then forget about a rally.

Always consider the factor of time. If a rally is on the works most of the time it will take place immediately after the great news is released. If after 2 or 3 minutes of the news being out you don't see any action that indicates that a rally is about to begin then chances are that it wont start.

On the other side, when you start seeing that a rally is loosing its energy then this is the best time to consider getting out. Usually when a rally is losing energy you can tell by watching more sellers than buyers on L2 and the bid price stops rising. This can happen at any time so you better be prepared and check those bidders on L2.

There are rallies that can last more than 5 minutes giving you enough time to buy and sell with ease. But there are also rallies that don't last more than 1 minute so you must be willing to sell if you see that the rally is expiring. It is always better to sell on the way up than on the way down. So don't get greedy.

In the cases where you got in at a very good price and you are up now with nice profits on the table and your stock seems to keep going up after a 5 minute rally, then you can consider not selling if you experience a small bump.

As an example lets say you bought the stock at $6.15 at the right time after the great news hit the wires and after 5 minutes of rally you are up now one point at $7.15, but then your stock starts to fall back abruptly to $6.90. At this point you can decide whether to sell fast at market or put a stop loss at $6.7 to lock in profits. Many times a stock will rally for a few minutes and then retrace a little only to get back on its way up. It's up to you to make the call and dump or hold. Watch closely the fight between bidders and askers on L2.

If your stock is holding well trough out the day with profits of the size of the previous example on your side, then you could consider holding it for the next day and possibly ride a morning gap up. JUST MAKE SURE YOU NEVER LET A PROFITABLE POSITION TURN INTO A LOSER. As long as you sell for a profit you're ok and ready for the next round of good news. Only consider holding overnight positions where you are up more than a point.

Always FOCUS ON NEWS THAT YOU CAN INTERPRET FAST such as FDA approvals, new contract awards and patents. Remember that earnings news can take longer to interpret.

Trade using limit orders preferably. Put a market order only in the cases you want to sell faster to take profits as soon as possible on the way up or to avoid a potential loss if its going down again fast. If your stock is up 5 % and you still don't want to sell, put a stop loss at least 2% above your entry price.

If the stock doesn't keep moving up after you bought it and just remains at the price you got in, then get ready to exit if you don't see the bid or the ask improving. The next thing that could happen is that it's going to fall.

Remember you don't need to get greedy. There are times when a position can go against you and there will be times when you just break even, but still you will be able to minimize your losses if you act fast and move on without feeling stuck to a negative outcome. Remember that a loser is a person that never moves on. So don't be one of them.

As long as there is a stock market there will always be good news to take advantage from. It might come again in a few minutes or maybe until tomorrow, but there can always be a constant flow of relatively good news that will help boost the price of a stock.

As a rule start developing your own stock watch list from the day you start paper trading. You have to be able to identify which stocks react better to news so that you feel comfortable trading them when their next round of good news hits the wires again. Include in your list those stocks that have performed poorly on good news so that you can avoid them next time or think twice about trading them.

CHAPTER 5-
OTHER FACTORS THAT CAN AFFECT THE POWER OF A CATALYST EVENT

Always take into account that what the market is doing as a whole can influence the outcome of a news story or catalyst event for a particular stock.

If in a given day you have the Nasdaq tanking like crazy because of some general bad news story and the declining stocks outnumber the advancing stocks, then simply forget about going long that day, because it's possible that what could have otherwise been a very positive reaction to a stock because of a good news story, will generate a mediocre performance since the market in general is acting poorly and as a result traders are more risk averse and feel negative about everything.

On the other side, when the market is bullish traders tend to feel more positive about everything especially the stocks with very good news. That's when your chances of making money going long increase.

Another important issue to be aware of is that a stock with good news can be even more attractive to traders and investors if it belongs to a hot sector of the moment.

The good thing about this is that there is always a hot sector in the stock market, either in good or in bad times, and by focusing your attention on the catalyst events previously described for stocks belonging to hot sectors you could be able to pick more accurately stocks that are poised for big moves.

Just remember not to get greedy. Once you master this system you will be able to look at the stock market in a different way and initiate a more predictable journey as a trader.

Chapter 6.-
Trading psychology. Realistic mind frame of experienced momentum traders.

1-Apply a time rule to every trade you make. Never say things like "I am looking to make at least $500 on every trade" because you will feel tempted to stay longer than necessary on a trade. Instead simply say to your self "I am willing to take as much money as I can after riding a rally for an specific amount of time", or "If after riding the rally for an specific amount of time, my stock keeps looking strong, then I will set a new stop loss at a higher price to lock profits".

2- Accept the fact that once you buy a stock you cannot control the price direction. You can only react to the price action and CONTROL the amount of time you stay inside the trade (assuming your stock doesn't get halted). You need to be willing to get rid of your position if it fails to reach a reasonable target within a specified time frame.

3- Feel good about taking relatively small profits per trade in exchange for a high percentage of winning trades. Scoring small profits consistently will reinforce your discipline and give you a stronger sense of control.

4- Be practical and view this business realistically. Stocks go up when at a certain point in time they have MORE BUYERS with more money THAN SELLERS.

5- Don't attempt to be a momentum trader and an investor at the same time. Treat your stock like a momentum play. Unless you've locked a profit greater than 1 point, leave the buy and hold game for other occasions.

6- To be successful you need to happily EMBRACE the implications of short term trading and stay disciplined. Disciplined to take profits when you can and disciplined to get rid of laggard or losing positions without hesitation.

7- Don't wait for a stagnant position to go down. If after a determined amount of time you conclude that the reasons for staying inside a trade are getting weaker every second, then get rid of the stock and regroup your forces back into your cash account.

8- Seek to be profitable on your trading but don't expect to make a killing all the time. Your greatest home runs could come from 5% of the total number of profitable trades you accomplish. Let your profits run, but don't force them. The more you try to fight extra money out of a trade, the closer you can get to a loss.

9- Momentum traders avoid trading when they have emotional problems or health problems. To be successful as a momentum trader you have to feel as sharp as a predator. Feeling sad or being sick will affect your performance.

10- Trading is a business. Keep a balance sheet of everything that comes in (profits) and everything that goes out (losses) including commissions paid to the online broker. Start a trading diary as soon as right now. Use the diary to MONITOR YOUR ACTIONS. DO IT BY WATCHING YOUR RESULTS EVERY 10 TRADES. Report number of winning trades and number of losing trades as well as money made and money lost. MAKE NOTES OF EACH OF THOSE TRADES and analyze your behavior. Write down the characteristics of the winning trades. Study the details of what went wrong on those losing trades. Your goal is to get sharper every week.

CHAPTER 7-
RECENT EXAMPLES OF STOCKS* THAT COULD HAVE BEEN TRADED USING OUR STRATEGY
CYBE FROM $13.92 TO $14.29 ON 02-17-2005
CyberOptics to supply inspection cameras to DEK International.
DEK International GmbH (Zurich, Switzerland), is the world's leading provider of equipment and processes for the high accuracy mass imaging of electronic materials.
FCEL FROM $9.48 TO $10.65 ON 02-16-2005
Starwood Enters into Agreement with FuelCell Energy and Alliance Power Joint Venture for Hotel Fuel Cell Power Plants
One-Megawatt Project for Sheraton San Diego Hotel & Marina Will Be the First Executed Under the Agreement
CRAY FROM $3.56 TO $3.72 ON 02-15-2005
Air Force's Maui Center Selects Cray XD1 Supercomputer to Boost Space Surveillance and Image Processing Capabilities
This order is part of a multi-order award with an aggregate value of over $23 million that Cray has received from the Department of Defense (DoD) High Performance Computing Modernization Program (HPCMP).

RTIX FROM $10.56 TO $10.75 ON 02-14-2005
Regeneration Technologies Receives 510(k) Clearance for Allograft Paste Product

BCON FROM $.93 TO $1.21 ON 02-14-2005
California Energy Commission Awards Beacon Power $1.2 Million Contract for Major Energy Storage Project

ALTI FROM $1.98 TO $4.07 ON 02-10-2005
Altair Nanotechnologies Achieves Breakthrough in Battery Materials
Altair's Developments Pave the Way for a New Generation of Rechargeable Batteries
Altair has confidentiality agreements in place with some of the world's leading battery development companies to evaluate and commercialize these battery electrode materials.
ERES FROM $13.49 TO $14.15 ON 02-09-2005
Three International Drug Developers Award $3.6 Million in Thorough QT Studies to eResearchTechnology
Sponsors Include a Top-10 Pharma and Two Japan-based International Pharmaceuticals Demonstrating Continued Global Adoption of Regulatory Guidance

TRPH FROM $1.43 TO $1.57 ON 02-08-2005
Tripath's Class-T Amplifiers Chosen by Virgin Electronics to Drive Boomtube EX
TA2024 Drives Award Winning Boomtube EX Portable Speaker System
ALVR FROM $10.87 TO $11.34 ON 02-07-2005
Verizon Avenue Deploys Fixed Wireless Broadband Services Using Alvarion Systems
Broadband Internet Services Being Provided to Revitalized Housing on Former California Military Base
BJCT FROM $1.68 TO $2.12 ON 02-04-2005
Bioject and Chronimed/StatScript Announce Supply Agreement
Novel Needle-Free Injection System to Be Available for HIV Therapy

DOC FROM $5.06 TO $5.48 ON 02-04-2005
Digital Angel Corporation Delivers 50,000 Bio-Thermo RFID Microchips in United Kingdom
Company Plans Launch of Proprietary Temperature-Sensing Microchip in United States This Summer
ACTI FROM $7.77 TO $8.11 ON 02-03-2005
ActivCard Announces Aspace Solutions Signs Marketing Agreement With IBM
Aspace Solutions Achieves Acquisition Milestone
NSTK FROM $10.40 TO $11.16 ON 02-01-2005
Nastech Receives FDA Approval for Nascobal Nasal Spray for Malabsorptive and Diet-Related B12 Deficiencies
- Triggers a $2.0 MM Milestone Payment to Nastech -
- Questcor Pharmaceuticals, Inc to Market Nascobal -
EVST FROM $7.09 TO $8.17 ON 01-31-2005
Everlast Worldwide Inc. Signs Three New International Licensees
Everlast bags and backpacks set for launch in Canada; Eyewear to be developed for Asia; and retail boxing equipment to debut in South Korea

XING FROM $7.39 TO $8.35 ON 01-27-2005
Qiao Xing Universal's Subsidiary Becomes One of SAMSUNG Electronics' Major Telephone Sets Suppliers in China

IDBE FROM $15.49 TO $15.97 ON 01-26-2005
ID Biomedical Announces Immunogenicity Results from Phase II Trial of Streptavax

CRIO FROM $2.34 TO $2.78 ON 01-25-2005
IBM To Acquire Corio
Acquisition Strengthens IBM Application Services Leadership

HITK FROM $18.06 TO $18.50 ON 01-25-2005
Hi-Tech Pharmacal Receives FDA Approval for Ciprofloxacin Ophthalmic Solution

ISWI FROM $5.54 TO $6.07 ON 01-25-2005
Interactive Systems Worldwide Inc. Announces Completion of Testing of Interactive TV Product by Partner
The interactive television ("iTV") version of The Company's SportXction(TM) play- by-play sports betting System has successfully completed the formal test process required of all new products prior to their acceptance for broadcast over the BSKYB satellite network, which operates in the United Kingdom and The Republic of Ireland.
CSGS FROM $16.94 TO $17.50 ON 01-24-2005
Zhejiang Telecom Selects CSG Systems' Kenan(R) FX Solutions to Support Convergent Services
Zhejiang Telecom to Consolidate Four Legacy Billing Systems Across 11 Cities
ISWI FROM $5.35 TO $6.02 ON 01-24-2005
Interactive Systems Worldwide Inc. Announces Sustained Dramatic Increase in New Players and Wagering Handle
PPHM FROM $1.07 TO $1.21 ON 01-21-2005
Peregrine and New Approaches to Brain Tumor Therapy (NABTT) Consortium Receive Approval for Cotara(R) Brain Cancer Protocol
PGNX FROM $16.75 TO $17.51 ON 01-20-2005
Legg Mason upgrades from Hold to Buy
The company announced a few hours before that it achieved positive Top-Line Results from Phase 2 Clinical Trial of MNTX in Post-Operative Bowel Dysfunction

AVII FROM $2.10 TO $4.17 ON 01-19-2005
AVI BioPharma Receives Key U.S. Patents Covering Preservation and Expansion of Stem Cells Using Third-Generation NEUGENE Antisense
Broad Patent Coverage Secures AVI's Central Role in Stem Cell Applications
TERN FROM $2.50 TO $2.73 ON 01-18-2005
Terayon Selected for Cable VoIP Deployment by Hong Kong's Wharf T&T
Terayon's Latest eMTA Provides the 'Edge' in Residential Voice Services Deployment
BLDP FROM $6.38 TO $6.70 ON 01-13-2005
DaimlerChrysler and Ford Invest CDN $55 Million in Ballard Power Systems

IMAX FROM $8.39 TO $9.29 ON 01-13-2005
IMAX Signs Three Theatre Deal in China
Agreement with Chongqing Municipal Government to Bring First IMAX(R) Theatres to the Country's Largest City. Twenty-Two IMAX Theatres to be Open in China by 2008

MYGN FROM $22.40 TO $24.92 ON 01-12-2005
Myriad Genetics Initiates Phase 3 Clinical Trial of Flurizan(TM) in Alzheimer's Disease
The trial will be conducted in approximately 750 patients at approximately 100 centers in the United States.
OTIV FROM $11.82 TO $12.36 ON 01-12-2005
OTI Receives an Award By the U.S. Government for "'Electronic' Passports"

FLYI FROM $1.52 TO $2.43 ON 01-11-2005
FLYi, Inc. Announces Agreement With GECAS
Finalized an agreement with GE Commercial Aviation Services, Inc. and certain of its affiliates ("GECAS") to provide for the early termination of leases on ten regional jet aircraft during the first quarter of 2005

IMAX FROM $8.29 TO $8.73 ON 01-11-2005
Imax Corp Upgraded by Harris Nesbitt
Yesterday the company announced a deal for the Mexican market.

WEBX FROM $21.10 TO $22.88 ON 01-10-2005
Department of Defense Selects WebEx Communications to Provide On-Demand Web Conferencing Services
Secure Web Conferencing Network to Connect Defense Organization's Worldwide Operations
TRPH FROM $1.68 TO $2.09 ON 01-07-2005
Tripath Chosen by Panasonic for Highest Power in-Dash Car Audio Head Unit

IDBE FROM $14.40 TO $15.44 ON 01-07-2005
ID Biomedical receives clearance from the FDA for Fluviral clinical testing in the U.S.

NGEN FROM $6.38 TO $6.82 ON 01-06-2005
Nanogen Issued Patent for Permeation Layer of Microchip

IBIS FROM $3.38 TO $3.93 ON 01-06-2005
Ibis Technology Receives Implanter Order
Leading silicon wafer manufacturer orders an Ibis i2000 oxygen implanter for producing SIMOX-SOI wafers; order valued at approximately $6 million

DESC FROM $2.47 TO $2.77 ON 01-05-2005
Distributed Energy Systems Corp. Announces Its Northern Power Systems Unit Is Awarded a Multi-Million Dollar NYPA Master Implementation

NEOL FROM $12.34 TO $12.79 ON 01-04-2005
NeoPharm Announces Japanese Licensing Agreement for IL13-PE38QQR with Nippon Kayaku
$2 Million Up-Front Licensing Fee and Up to Additional $14 Million in Future Fees and Milestones

VSCI FROM $3.56 TO $3.90 ON 01-03-2005
Vision Sciences Announces Exclusive Distribution Agreement With Medtronic USA, Inc. for Its Urology Products within the United States and Canada

MVIS FROM $7.22 TO $7.68 ON 01-03-2005
Microvision signs License and Development Agreement with Ethicon Endo-Surgery, Inc.

NRPH FROM $14.58 TO $17.40 ON 12-31-04
New River Pharmaceuticals Announces Collaboration Plans on NRP104
-- Potentially first abuse-resistant and overdose-protective stimulant
-- Drug in Phase III Trials for the treatment of ADHD
-- Anticipated U.S. market entry 2006
-- Non-binding letter of intent with Shire Pharmaceuticals

APII FROM $3.03 TO $4.67 ON 12-30-04
Action Products Reports Increased Sales Gains
Sales Growth Continuing into 2005

IRSN FROM $2.23 TO $2.69 ON 12-28-04
Irvine Sensors Ships 1st Production Lot of Thermal Viewers.
Units Intended for Use in Global War on Terrorism

RSCR FROM 15.50 TO $16.29 ON 12-27-04
ResCare's Arbor Unit Awarded 3-Year, $90 Million NYC Contract

ULBI FROM $15.90 TO $19.73 ON 12-23-04
Ultralife gets $286 million contract

PACT FROM $10.03 TO $11.97 ON 12-22-4
PacificNet selected by Guangzhou Metro

DESC from $2.37 TO $2.65 on 12-21-04
Northern Power Systems Awarded $4.1 Million Contract for On-site Power System

SUPVA from $4.12 TO $5.01 on 12-21-04
Super Vision Signs Licensing Agreement with IMS & LED Power

MTSX from $4.54 TO $5.22 on 12-21-04
Metal Storm Proposal Selected by Defense Advanced Research Projects Agency -DARPA-

SYNM from $7.09 TO $7.46 on 12-20-04
Syntroleum and ExxonMobil Sign GTL Technology Agreement

TACT from $19.45 TO $22.85 on 12-17-04
IGT and TransAct Expand Relationship With New Supplier, Sales and License Agreement

EVST from $4.22 TO $7.31 on 12-17-04
Everlast Worldwide Inc. Announces the Signing of the Largest Licensing Agreement In Company's 94 Year History.
5 year license agreement provides for minimum royalty guarantee payments of $12.5 million with a long term option in 2009 for an additional $30 million

PACT from $9.92 TO $11.41 on 12-16-04
PacificNet Acquires Clickcom, a Leading Provider of Value Added Telecom Services in China.
Acquisition of Leading Chinese Mobile Internet Company Expected to be Accretive to 2005 Results

SYBR from $2.92 TO $3.35 on 12-16-04
Google Referrals Increase Synergy Brands' Cigars Around the World Online Sales by 200% This Holiday Season

ATCO from $6.55 TO $7.47 on 12-15-04
American Technology Corporation Awarded $4.89 Million LRAD Order.
ATC Supports U.S. Army with LRAD Deployments in Iraq

SQNM from $1.09 TO $1.55 on 12-15-04

Important Discovery of Gene Involved in Breast and Prostate Cancer.

ELON from $9.16 TO $10.53 on 12-14-04
Chinese government uses Echelon Technology to improve mine safety.

WAVX from $.91 TO $1.59 on 12-14-04
Wave's software avaliable for distribution to Dell Inc.

BCON from $.49 TO $1.08 on 12-14-04
Beacon awarded participation in two projects with New York State Energy Research and Development Authority and with the California Energy Commission. Terms not finalized yet.

MBAY from $1.37 TO $1.54 on 12-13-04
Media bay reaches agreement with Harper Collins

SIRI from $7.81 TO $8.13 on 12-13-04
Added to the QQQQ index

IMAX from $7.69 TO $8.20 on 12-13-04

Receives non-disclosed lump sum from litigation and ups guidance.

GEPT from $5.45 TO $6.29 on 12-10-04
Receives sales order from another European carrier for installation of their surveillance systems

FNSR from $2.06 TO $2.25 on 12-10-04
Positive New Star Analyst Ranking

XYBR from $1.28 TO $1.40 on 12-10-04
Granted patent for assessing metal deterioration on maritime vessels

ALTH from $2.13 TO $2.58 on 12-09-04
Positive results in 3rd phase clinical trial

INGN from $8.97 TO $10.35 on 12-09-04
Positive results in clinical trial

RITT from $2.76 TO $3.02 on 12-08-04
Poland's largest telecom places $2M order for RiT's PairView Pro

NGEN from $6.09 TO $6.40 on 12-06-04
Receives patent award

IDBE from $17.80 TO $19.57 on 12-06-04
IDBE Medical to ship 1.2 million doses of its flu vaccine to Canadian market.

PACT from $10.20 TO $10.74 on 12-03-04
PacNet to launch new outsourcing center in China

GEPT from $3.30 TO $5.59 on 12-03-04
Receives sales order for installation of their surveillance systems

BIOM from $2.10 TO $3.40 on 12-03-04
Positive results in lung cancer clinical trial

RITA from $3.93 TO $5.66 on 12-02-04
Positive result in clinical trial

*Disclaimer: We are NOT recommending these stocks. They serve to illustrate educational examples of trades that could have been done for especific stocks identified using our strategy and only for the date we are referring to. This is neither a solicitation nor an offer to buy or sell a stock.
The purpose of this information is to educate and entertain. The authors and publishers shall have neither liability nor responsibility to any person or entity with respect to any loss or damage caused, or alleged to be caused, directly or indirectly by the information contained herein.
Always remember that day trading and investing in stocks involve high risks and you can lose a lot of money. Always analyze the level of risk you are assuming. Past performance is just past performance and it doesn't mean that it can necessarily be replicated in the future. Never trade with money you can't afford to lose.

Copyright © 2004-2008 MTM STRATEGIES. All rights reserved.

Posted December 31, 2008

Tony-Matos wrote...

Nice lens, very helpful, keep up the great work, as we know trading will never die!!! When you have time try to visit my lens, take care

Posted May 27, 2008

anonymous wrote

Great Investment! Vana Blue is a publicly trading Company, I heard great things about their Company and I already bought some shares. The Stock Symbol is "VBLU", it should reach $1 in a mattter of weeks, the website is www.vanablue.com, don't wait.....

Posted April 08, 2008

dataminer wrote...

Lots of good info on a very helpful lense.
Currency Trading Class

Posted October 20, 2007

coollikeme wrote...

Very informative and helpful.

Posted August 18, 2007

Great lens! I voted 5 stars - I invite you to check out mine too, and rate it for me! Live Streaming Video

Posted August 05, 2007