From the April 01, 2012 issue of Futures Magazine • Subscribe!

Stocks and the Juggernaut Surge

Non-professional traders — traders who work full-time jobs and trade part-time — are confronted with the daunting task of balancing work, family and trading. For these traders, it’s not just about knowing the fundamentals or properly evaluating a price pattern, it’s about evaluating a price pattern while grading papers, studying for a Master’s degree, putting together a presentation for work or taking care of sick kids. Trading is a challenge. It’s even more of a challenge when you can’t give it your full attention.

For non-professional traders, whether in pursuit of profit or the intellectual challenge, the vagaries of everyday life often are as responsible for poor performance as faulty analysis or risk control. Of course, most of us are not professional traders, so managing trades successfully and controlling risk in a part-time trading environment are necessities. However, the failure of part-time traders to adjust their expectations — and, indeed, the very way they approach the markets — has left generations of aspiring traders with frustration, hopelessness and empty bank accounts.

The answer is simple, however. You can’t aspire to the best trading technique you discover, no holds barred. Call it a compromise, but the truth is you must build your trading approach around a method that takes your logistical realities into account. Luckily, you can do so while keeping the potential for strong returns and manageable risk. 

First principles

The demands of working full-time, coupled with those of family life, force sacrifices in the pursuit of developing a workable trading plan. For most, that means that short-term trading — trading on a time frame as short as a matter of minutes to as long as three days — is not practical. Yet, many will try to juggle staring at a computer monitor, watching every tick, while a baby cries in the background and lunch is cooking on the stove. 

Both Warren Buffett, legendary value investor, and Ed Seykota, a famed trend trader highlighted in Jack Schwager’s book “Market Wizards,” say they don’t obsess over every little price movement. In fact, both of them claim not to have a computer in their office despite having millions or billions of dollars active in the markets. Each has a working methodology free of mental and emotional baggage to distract them from the business at hand.

One way to support this type of mental detachment is to seek the strongest stocks available — those poised to move with the force and velocity of a high-powered freight train. You want a juggernaut that won’t be knocked off course and all you have to do is latch on and ride the momentum higher. Ideally, you will seek positions that potentially can run for months or years.

The answer lies in identifying stocks that meet a strict assortment of fundamental and technical requirements, as well as critical short-term price setups.

All of our trade candidates must be filtered using broad, long-term analysis. You do not have time to take major risks. In the context of this strategy, your positions must be built on a foundation of fundamental strength. “Making the grade,” (below) lists the set of fundamental criteria for filtering stocks for a Juggernaut Surge. 

The technical criteria are much simpler; there are two key factors to validate a potential entry:

  • Price must be at a one-year high (preferably an all-time high).
  • The previous eight weeks have seen a price surge of at least 50%. 

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