It used to be that as a retail participant trying to invest in the markets, you had three major problems when it came to finding profitable ideas.
CHALLENGES
The first problem was actually finding information on the on stocks you wanted to trade. Technology and ease of access to data has made that issue a thing of the past, however it still leaves you to deal with the issue of accuracy and interpretation of information
Accuracy is just a nice way of saying “is the company/analyst that is providing you information telling the truth/competent?” Perhaps the best illustration of this was during the financial meltdown of 2008 when it was common place to hear CEO’s and analysts saying one thing and the facts telling a completely different story.
But even if you can somehow verify the accuracy of the information, how do you deal with its interpretation by the market?
So let’s say you find the data, verify its accuracy, do the analysis and it tells you XYZ company is going to have excellent earnings. You get long the stock, and sure enough the company does have a “blow out” quarter…..and the stock sells off on the news.
Perhaps the earnings were already factored in to the stock’s price, perhaps investors think this is the climax of earning growth, perhaps, perhaps, perhaps.
CHARTS ARE THE ANSWER
Subjectivity is the enemy of the “trader,” and we use technical’s and chart based analysis to be as “objectively neutral” in our biases.
FINANCIAL SECTOR
Take for example the financial sector right now. Are we in a recession? Will jobs come back? Will increased regulations hurt the banks? As a trader, I don’t know, nor do I care. What I do know is this….
FLAGGING
JP Morgan (JPM) has been consolidation in a flag pattern just below a gap resistance and is starting to break out. It is a buy right around $41.50 with a stop one buck lower. The target is the recent high of around $46.00 for a 1: 4.5 risk/return ratio.
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