Friday, December 31, 2010

The Top 10 Stocks of 2010 and Lessons Learned From Them

Here's the final post of the year, and since the market has been sleepwalking for the past week or two, I figured it was a good time to look back at some of the biggest movers from the past year and try to learn from them.   It is always beneficial to study past winners - for me, at year's end, I go through my scans to find the biggest winners for the past year and keep them in a watchlist in Telechart.   I encourage you to do the same.

To start off, here's a quick look at the overall market this year.   Was it an easy market?   At times, you could say yes, given the relatively smooth uptrends we saw from February to May and also from September to December.   Volume was not always there in those uptrends, but overall, if you stayed patient you could make some nice gains.  

Nasdaq YTD

Now May to September - that was another story.  Total chop.  Let's hope we don't have more periods like that in 2011.   As I reviewed my basic timing system over the past year, most of the false signals I saw took place during these months.  You'll have that however - trading lightly when signals get whipsawed is probably the best thing you can do.

In terms of individual stocks, I am sharing ten with you that I think are important from the past winners.   There are many that could have been chosen, but these are the ones that stood out to me for one reason or the other.   Some are IBD-type stocks that had year-long moves (although quite choppy moves) while others were recent IPOs that had quick one or two months bursts in which they doubled or more.   They all are worth studying.

All Charts from Telechart, Courtesy of Worden Brothers, Inc.

As I studied these, I found some common factors that I have discussed in previous years and are again important to remember heading into 2011....
  •  All of these stocks started with a heavier volume, one-day move of over 4-5% (and in some cases the move was much higher).
  • In several cases, the first move was a result of positive earnings being released.  
  • Buying stocks that have had a big, one-day move is very difficult (at least for me) as your mind tends to think they have moved too far, too fast and will pullback as soon as you buy (at least that's how my mind thinks).   That does happen, but most of these big winners see immediate follow-through the next day.   
  • Simple method for riding your winners as long as possible - use the nine day moving average as a trail on a CLOSING basis.   When the 9 day starts to flatten out or it is broken, typically the stocks will have a consolidation period or get choppy, so it is usually best to take your profits and move to the next opportunity.
  • As your gains increase, in some cases you may want to use the 20 day or even 50 day moving average as a stop loss level.  That is up to you and your trading style.  
I hope this helps you out going into the new year.   My main account transfer is now complete from Scottrade to ThinkorSwim (I am waiting on the IRA transfers until the arbitration case in closed) and I look forward to having a positive trading year.  This weekend, I will look at some stocks to watch closely going into 2011 and also discuss my basic timing model that I have worked on at various points this year - the Nasdaq model may go to a "caution" signal after today.   Take care and happy new year!!!


PortlockTrader said...

Excellent year and I commend you for looking back at the year that was to determine what work and what didn't. We can always learn a great deal from looking back at the charts to see how we reacted in real time, why we made the decision and if our rationale was valid.

You seem to have several stocks on your radar that I miss. Any chance you would post the securities list that you reveiw regularly?

Best of luck in 2011!

Anonymous said...

Mac, can you please elaborate and explain how to place this type of order in TOS?
"Simple method for riding your winners as long as possible - use the nine day moving average as a trail on a CLOSING basis."

Mac said...

Honestly I am just starting with TOS so me entering a simple buy order is what I'm learning now.

I don't know that you set it up as an order - simply watch and if the stock is going to close below it at the end of the day, you get out. You can use a hard stop but often times momo stocks get below that level and then rebound back above it by the close. Not always, but often. I would simply analyze the stock each day and if it closes below it, I would look to get out.