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Saturday, November 17, 2007

Using the TradeRadar software -- thoughts after one year

It has been one whole year since I started writing this blog and trying to document both my opinions on the markets and my experiences using the TradeRadar software.

In terms of writing on topics of interest related to stocks, ETFs and the economy, I know I have gone in many directions but I hope that I have at least hit a few areas that have been of value to you, the readers. Many times I have tried to pull together information in such a way that a new point of view can be derived. Other times I have tried to be informative on a subject in which I myself wanted to know more. In any case, I want to thank everyone for visiting this site and taking time to read the posts and leave your comments. Feel free to leave suggestions on new topics you might like to see covered.

As for using the TradeRadar software and attempting to trade based on its signals, it has been an interesting journey. There are a couple of general points that I would like make.

One of the pieces of advice that many stock trading gurus provide is that investors should keep a journal of their trades. Why they elected to open the position, why they chose to close the position and what was the result. This is how investors can most effectively learn from their experiences. This blog has served as my journal, a very public journal.

What are some of the things I have learned? The first one is that I am better at buying stocks than I am at selling them. Over the past year I have watched a number of profitable positions go bad by not selling in time. Sometimes these were cases where the time between buying the stock and the optimal selling point was too short for the TradeRadar software to generate a clear signal in time. Other times I allowed my hope for a recovery to overcome my common sense. This is why I have adopted the practice of setting stops and communicating them in both this blog and on the TradeRadar Track Profit & Loss page. Where I am unclear about the future of a stock or ETF, you will see that I adjust the stop accordingly, tightening it up to ensure capital is preserved.

(For those of you who have downloaded the TradeRadar software, you can use the Portfolio feature to keep your trading journal for each stock that you may purchase. You may also join the TradeRadar Users group which allows you start your own blog that can be private or viewable by other members of the user group.)

Recently, I received a comment on my picking Starbucks as a Pick 'o the Month. The person took me to task for picking a loser and potentially costing my readers money. I sometimes pick stocks based on a positive trend's continuation (Cisco Systems, for example) but when using the TradeRadar software, stocks are picked because a trend appears to be broken. This means we look for stocks that have been viewed in a negative light, whose stock prices have been declining. The TradeRadar software attempts to identify when this kind of stock has hit bottom and has begun a reversal. There is risk to that approach. The stock could disappoint again and resume its downtrend. That is what happened with Starbucks, for example.

What all this means is that the TradeRadar software attempts to identify out-of-favor stocks that are beginning to show signs of a recovery. With Starbucks, we set a stop that prevented us from taking much of a loss. The fact that the stock eventually fell in spite of generating a BUY signal shows that there were a good number of buyers who also believed the reversal was imminent.

As users of the TradeRadar software, we need to understand what the signal is saying. It may be better to use weekly data rather than daily data to generate BUY/SELL signals in order to be more assured that a true reversal is taking place. I have typically used daily data and, as you can see, I have not always been right. Using weekly data, however, may cause the signal to be delayed and you may miss quick swings up or down that can cost you profit or capital. This can be an especially acute issue in today's volatile markets.

In any case, as I experiment with the TradeRadar software and attempt to improve its functionality and my trading techniques, I will keep you informed. Now that the User Group is in place, I encourage you to leave your opinions and experiences regarding your trading and your use of the software.

Once again, thanks to everyone for visiting this site. It has been an interesting year to be involved in the stock market and I have enjoyed sharing my thoughts with all of you. I look forward to continuing this blog and, in a crowded blogosphere, I hope I can continue to earn your attention.

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