How to Trade Stocks
Whenever I see a feature about a company on the front of a
popular magazine, I am confident that the stock of that company is probably at
an extreme and a very high risk for either a steep retracement or a reversal of
trend even before even checking the stock chart. That is because magazines and
general news media only report on companies after the fact, and after
the stocks have been moving for a long time.
A few professional traders have even tried to develop a
trading sell short strategy based around popular magazines featuring a company
on the front page or as a major news story. It is not a sure thing, but
some professionals have found that they can sell the downside very well once
the stock starts to tumble. The requirement is a confirmed topping candlestick
pattern action, using appropriate indicators.
That is not to say that every company that is featured on
the front of a popular magazine suddenly heads south. However it is an
interesting phenomenon that correlates with the odd lot buyer, who is always
the last buyer into a stock prior to a major reversal of trend. The odd lot
buyer is also the last one out of a downtrending stock that has lost most of
its value.
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Summary
So when you see a stock you own on the cover of a magazine
or headlining a TV news story, it is time to start ratcheting up the
stops and considering if an exit should be planned. Much of what is read and
heard is ancient information that has already been factored into the price. If
it is in the news as a hot stock, then it is suspect for at least a
retracement and more likely the start of topping action.
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Trade Wisely,
Martha Stokes CMT
Chartered Market Technician
Instructor and Developer of TechniTrader® Stock and Option Courses
TechniTrader DVDs with every course.
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