Part 3 — Steps 6 through 9
“It’s never over till it’s over.”
First, our thanks and a shout out to Patryk S. for asking for this series.
This is the third in a series of Tidbits explaining how I make investments. In Part One, I covered the activities I engage in before I even begin using the Trending Stocks platform. In Part Two, I covered the first five steps of the process. Today we cover Steps 6 through 9. – John Duffy, CEO, Trending Stocks
The Steps are easy to follow and all of the information you need to execute each step can be found on the Trending Stocks platform in each “Today’s Report” see the example below.
- Step 6. This is where I begin to look closely at the details associated with each trend. The first thing I look at is the Year High Price and compare it to the Closing Price. I prefer a closing price that is at or close to the One Year High. It indicates to me that the stock is currently doing well and not in recovery mode. Remember, I said I am a conservative investor.
- Step 7. I then look at the Volume, an essential element of Risk Management. The Volume represents the number of shares traded that day. If the volume is less than 500,000 shares traded, I pass on that stock. My preference is 1,000,000 shares traded, or more. When you’re employing Stop Loss transactions, trading volume is very important.
If the Volume is greater than 1M shares traded, it is an indication of liquidity and increased probability that there may a buyer for a seller’s shares. The lower the trading Volume the less “liquid” that stock is and the seller might have a problem when they wish to sell, especially if the stock is in a downturn.
If your stock’s price hits the stop price, you want to be fairly comfortable that your sell contract has an opportunity to be executed. Higher Volume of shares traded is more positive than lower volume.
- Step 8. I then check the Volatility, another element of Risk Management, to see if it’s “Acceptable”. As shares are bought and sold, every stock experiences some price movement. Volatility is a measure of the recent fluctuations in the that specific stock’s price.
High volatility is a concern because large fluctuations in the stock’s price can cause the price to fall to a point that it causes a stock to prematurely Stop out. You only want your stock to Stop out when it’s truly warranted.
There are several examples of Volatility that I consider. One is very choppy with many up and down bounces and numerous spikes and valleys. I usually pass on this.
The other is a rather steady movement upwards from left to right on the Graph with bouncing but no spikes or troughs. However, — there always seems to be a “however”– if the price volatility is due to a big step up in price as the trend gains strength, that presents a very different and much more positive picture even though volatility may be High.
As I said earlier, I’m not overly concerned with a High Volatility, depending on the type, because I can adjust the size of the Trailing Stop Loss to provide a larger cushion.
Ultimately, Volatility is reflected in the Stop Loss Price.
- Step 9. The Trending Stocks algorithms calculate a Stop Loss Price based on the recent price volatility of that individual stock. It can be found on the stock’s Today’s Report. I always choose to use it and I always select the Trailing Stop Loss.
I may actually add a couple of % if the Stop Loss provided is below 10%. The Stop Loss is presented as both a dollar amount and as a percent. I prefer the percent. You can check our Trailing Stop Loss tidbit video for more details.
Some people are reluctant to apply a large Stop Loss, because they feel they might be giving up too much money. However, that is not the way I invest. The size of the Stop Loss is a component in determining the size of my investment, including the number of shares and the dollars allocated to the purchase of those shares.
Therefore, if the Stop Loss is large, my investment will be smaller. I am very reluctant to reduce the size of the Stop Loss, since it is directly linked to the recent Volatility of the Stock’s price and is another critical element of Risk Management. If all of the other variables are reasonable, I’m ready to start the investment process.
All of the information covered in today’s Tidbit can be found on the Trending Stocks Today’s Report. See this example:
Today we covered the Year’s High Price and several of the essential Risk Management elements:
· Stop Loss
Each of these Risk Management elements has been covered in further detail in individual Tidbits and can be found in the Knowledge Hub tab on our website.
Next week, the Conclusion of John’s Quick 12 Step Investing Process – Steps 10 to 12.
In the meantime, remember — Ride Your Winners; Cut Your Losses
You can see these trending stocks when you start your 4 week FREE trial right here!
Login, go to Detailed Search, Select “Days Trending”, Select “All Trend Strengths” and you will see Today’s Report with each Trending Stock.