The Traders Journal

Tensile Trading: Stage #6 Stalking for Winning Investment Ideas

Images (2)Let’s get this out on the table first off.  Stock market stalking is analogous to a lion stalking prey, not the paparazzi stalking a movie star.  As investors, we’ll embrace the watchful, persistent and focused part of the definition, and we’ll toss the pester, frighten and harass portion.  Having said that, if the targeted equity fails to impress us, we will indeed “stalk out” – as in storm, stomp and stride away in the opposite direction – but you get the point.  

Stalking is one stage that most investors transition through in a similar predictable path as they evolve from novice, advanced beginner, competent, proficient and finally to expert investor.   The simple truth is that novices have trouble limiting their sources of ideas and are then challenged again in how to winnow these infinite choices down to a few promising candidates upon which to focus. 


 

Experts, on the other hand, become disciplined in the art of methodically stalking the markets.  They have carefully optimized their investment radar (which is always on) and have learned how to maximize their stalking efforts.  In the most basic terms, they have learned over time

    (A) where to look
    (B) what to look at
    (C) how to look at what turns up.

Let’s examine each in more detail.

Item A:  Knowing where to look should be directly related back to your trading journal.  History is always the best scorecard for each of us.  This is a pitch for both keeping a journal as well as tracking all your trades.  It’s much like what all successful fishermen do – they record and return to the location of their previous big catches.  Two beneficial corollaries to this discipline are that it limits the search universe to something reasonable and it encourages you to trade something you know already.  Although it may be exciting, investing outside your trading plan will in fact decrease your probabilities for success and mastery.

Item B:  I examine the market to tell me what to look at.  Predefined scans can offer a virtual cornucopia of fertile ideas on either the long side or the short side, depending upon the markets you like to trade.  Well-designed alerts and triggers can also serve up stalked candidates when the perfect buying season arrives.  Even during bearish down markets, I’ve had success identifying equities that are moving sideways or are acting far less bearish than the market as a whole.  From this group often springs the new market leaders in the next bullish move, and your alerts will get you in early.  For a stalking strategy to be effective, the methodology has to be supported by an organized portfolio of increasingly higher priority watch lists which are reviewed diligently and appropriately.  This is why I encourage all investors to allocate serious time to arranging their chartlists into suitable and meaningful groups.

Item C:  How you look at whichever “tiger by the tail” equity you’ve discovered really matters.  First, calm yourself and your mindset.  Don’t let the market’s momentum or news get under your skin.  Put on your amnesia hat with respect to your last trade.  Whether a winner or a loser, that last trade should bear no significance to the possible trade at hand.  You must learn to stay true to your written trading plan instead.  “Know thy self” and deploy the tools in your methodology. 

How I personally look at equities is through the lenses of relative strength and money flow.  The 10 indicators I use are tools that I understand intimately.  I’ve learned to read their signals, be they subtle or obvious or everything in between.  It’s not a complicated toolkit of indicators, but it is my toolkit and it has served me well over the years.  The lesson here is that mastery is best achieved by practicing with the same tools over and over again.  As I’m stalking for tradable ideas, I use these tools as I apply them to one of my favorite rules.  It’s based on my “sisters” trading strategy which simply says, “I buy the best of the best and use the rest to monitor these best.”  But monitoring is a whole different stage of Tensile Trading so I’ll leave that for another day. 

In summary, embrace your own definition of stalking but be sure to include in it “watchful, & persistent & focused,” and infuse all your stalking efforts with a hefty shot of discipline and organization.

Trade well; trade with discipline!
-- Gatis Roze

 

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Great post (as usual) - Thanks.
Hi Alex, Thank you for your comment and for your interest in my weekly blog. At this juncture, I’m not really motivated to do virtual classes as I look to my teaching efforts to get me away from my trading screens and enjoy the belly to belly time with other investors. Having said that, I am considering perhaps videotaping my Tensile Trading seminar and making it available along with the syllabus. Stay tuned. Cheers, Gatis Roze
Jim, Thanks for your interest in my blog. I did address your question in a previous blog: http://blogs.stockcharts.com/journal/2013/08/tensile-trading-stage-4-how-to-put-the-winds-at-your-back-with-stock-market-analysis.html Hope that it will be helpful. Cheers,Gatis Roze
Good info - Can you share your 10 indicators or is that too much to ask? It would make a good Chartpack addition.
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