Trading Lessons And Technical Analysis Case Study – CFO.V Clifton Star Resources

by Olivier on March 3, 2010

Although CFO – Clifton Star Resources never made its way into my portfolio I want to talk about this stock in order to exemplify what great trading is all about. Technically speaking the stock printed a gap up which signaled a new trending move. During that move two bullish consolidation patterns developed. Both gave traders the opportunity to buy a position and participate in the up move. You only need a few trades like that during the course of a year and you won’t have to worry about anything. They will pay for all the losses and guarantee a great overall yearly performance. Here is the chart:

CFO.V Clifton Star Resources Technical Analysis Stock Price Chart Case Study

Up-to-date CFO – Clifton Star Resources chart on my public list.

Now, if only it was that easy. One the one hand it really is that easy, on the other hand it isn’t. The main issue is related to psychology and an unwillingness to adapt to new situations. Here’s how I think you can start solving this problem. The goal is to trade ‘new ideas’. New ideas that generate the best results are technically strong stocks with no overhead resistance. The market calls these stocks: ‘New leaders’. Every market cycle produces new leaders. One way to find them is to scan for above average volume in order to identify them early on. Another way traders make use of, is to scan for new 52 week highs or new all time highs. Still another way would be to scan for the strongest sectors and to trade the leaders within those sectors. Plenty of other methods to choose from…

No matter what your preferred method is, the lesson to be learned here is that new leaders almost always outperform former market darlings. Why is this so important? Simple. Most people don’t understand the implications. Probably the number one problem out there is the need to be right and the inability to let go of a stock or an old idea. Most people simply can’t part ways with former high-flyers. They do want to make money. The problem is they want to make money with that ‘one and only’ stock that means so much to them. Emotional detachment is the name of the game. You fall in love with a stock – you are doomed. Period.

JDSU is just one example that comes to mind. JDS Uniphase? No wait a second. Just Don’t Sell Us… You get the picture. Just replace the ticker symbol with the stocks that are dragging down your portfolio and eating up all your mental capital. Hence one of my favourite quotes: Kill your losers. Next time you keep adding to a losing position consider selling the position instead and buy stocks of potentially new market leaders.

Get exposure to new leaders. Be willing to leave your comfort zone.

Buenas noches.

{ 2 trackbacks }

Comments on this entry are closed.

Previous post:

Next post: