Stalking Great Stocks for Big Profits
"I tried to follow my dreams. Now I have multiple restraining orders."
-Unknown
The key to producing exceptional gains in the stock market is to aggressively buy the right stocks as they begin to make a big move. The best way to accomplish that task is to be a stalker.
A stalker is defined as "a person who stealthily hunts or pursues an animal or another person." There are several essential aspects to effectively stalking great trades.
- Patience. Traders tend to be impatient. They want big gains and they want them now. When a stock languishes they take it off their screen and move on to something that looks more interesting. Eventually, the stock makes the move that is anticipated but the trader is no longer in position to benefit if they had just calmly continued to watch
- Familiarity. With patience will come familiarity. The longer you watch a stock and follow the news, the more you understand what will eventually cause it to make a big move. If you know the nature of a stock then you will be better prepared to act when the time is right
- Persistence. The most important aspect of stalking for stocks is persistence. Your patience will help you become familiar with the stock. You will learn its personality and become intimately familiar with the way it moves. However, it is important to maintain an active mindset and to be persistent when nothing is happening. What makes stalking effective is that it prepares you to move aggressively and decisively when the time is right. Bide your time while you "stealthily" watch and wait for the best time to pounce.
- A Thesis and a Plan. You should have a thesis for the trade that you are stalking. Why do you think that this stock is going to be a big winner? What is unique about the situation that will eventually lead to a strong move? What is your plan for trading it as it develops? When is the right time to start ramping up the size of your position and when should you cut it.
- A Supply of Ammunition. The primary reason that stalkers of stocks fail is that they run out of ammunition. They identify a trade and then rush to buy too much too fast. Instead of focusing on building a position for the future catalyst, they end up focusing on short term losses that are mainly a function of ordinary volatility. It is important to constantly reload your ammunition and the best way to do that is to make shorter-term trades in a stock that you are watching. Take some partial profit when you can and reload on weakness when the opportunity arises. Stalking is much easier if you can make some minor trades while waiting for further developments.
- Don't Fall in Love Too Often. Market players fall in love with a stock as they invest time and energy trying to understand it. It is easy to become emotionally attached to a stock that you have followed for a long time. Periodically it is important to question your objective and move on if a stock isn't going to reward you for your efforts. Even when you have followed a stock for a while and have become familiar with it, that doesn't guarantee that your timing will be right. At some point, the prudent move is to move on and find the next opportunity.
Investors are trained by traditional Wall Street to look at investments as either 'good' or 'bad'. You buy a 'good' stock and just passively wait for the trade or investment to work. Stalking a stock is the middle ground. You don't trust the stock to be a 'good' investment until it starts to prove itself and as it does that you become more aggressive with your embrace.
In most contexts stalking is not a socially acceptable activity but when it comes to the stock market it's the path to big profits.
At the time of publication, James "Rev Shark" DePorre had no position in the securities mentioned.