Sometimes, pulling the trigger on a new stock for your portfolio
can be tough.
I'm not necessarily talking about the process of picking a stock
(not yet at least). What I'm talking about is the actual decision
to place the trade.
As many know all too well, there's an emotional component to
trading and investing that can be just as tough to master as the
process of picking the stock itself.
In fact, for some, their emotions are their biggest obstacle to
trading success.
Self-Doubt and Uncertainty
After you find a stock you like, but before you place the trade,
doubt can creep into your decision. And you begin to second guess
yourself.
What most people do then is research the stock some more in an
effort to find additional reasons to buy that stock. Invariably,
they will come across something that causes them to feel even more
hesitant about their decision. (Let's face it, no stock is perfect.
There's bound to be something about the stock that makes you a
little unsure or gives you pause.)
Before too long, you talk yourself out of the trade altogether,
only to eventually find the stock run up as you had expected. And
you've missed the whole thing.
You vow to not let that happen on your next pick. So the next time,
after you've found your newest stock, you decide to plunge right
in. (You don't want to talk yourself out of it like the last time.)
So you place the trade, even though you have the same unease as
before. This time, however, the stock drops after you get in, and
you immediately regret your decision. And you wonder how you could
have missed the warning signs.
So the next time, you tell yourself you'll be more diligent, and
turn over every stone before your next trade. But, of course, you
find yourself back in the same position as the first time, with
information overload, and self-doubt, which eventually slows down
your decision making and makes the whole process an emotional
rollercoaster.
Emotional Rescue
All of these debilitating emotions, which can make people hate
investing, can be directly tied back to the lack of confidence in
your stock picking methodology.
In other words, if you knew beyond a shadow of a doubt, that your
stock had a high probability of winning, you would not hesitate to
place your trade.
--------------------------------------------------------------------------------------------------------------------
Today,
See Zacks' Top Stocks for Free
Starting now, you can get instant access to the latest picks from
our market-beating strategies that produce average gains of +19.5%,
+27.8%, +54.5% and +67.4% per year. Plus, with this program, you
can create your own strategies and know how the stocks are likely
to perform before you invest in them.
Zacks will also give you a free Special Report,
Top 5 Valuation Secrets
, which could dramatically change the way you invest.
Learn more now >>
--------------------------------------------------------------------------------------------------------------------
The unease would disappear. The self-doubt would be replaced with
excitement. And the decisions that would previously drag on would
now be made quickly and easily.
And with such a high probability of stock picking success, your
confidence would soar.
Fortunately, that kind of confidence and stock picking prowess can
be obtained by anyone.
Years and years of trial and error are not necessary. Nor is a
degree in the school of hard knocks.
You simply need to know what works.
Easier Than You Think
Of course, as the saying goes, nothing is certain in life except
death and taxes.
But that doesn't mean you can't increase your odds of success. You
can. And you can do it with a few small things.
As mentioned earlier, you need to know what works. How does one do
that? By backtesting your stock picking strategy to see how
successful it has been in the past.
In other words, does your strategy generally pick stocks that go up
once they've been identified? Or does it generally pick stocks that
go down once they've been identified?
This is good stuff to know.
With backtesting, you can see how your strategy has performed in
the past so you'll have a better idea as to what your probability
of success will be now and in the future.
Of course, past performance is no guarantee of future results. But
what else do you have to go by?
Think about it. If you saw that a stock picking strategy did
nothing but lose money, year after year, stock after stock, over
and over again, there's no way you'd want to use that screen to
pick stocks with.
Why? Because it has proven to pick bad stocks. Sure, it may turn
around and start picking winners. But it may also continue to pick
losing stocks the way it always has.
On the other hand, what if you had a strategy that did great year
after year, trade after trade, over and over again? You'd of course
want to use that screen to pick stocks with. Why? Because it has
proven to pick winning stocks.
And while it may start picking losers all of a sudden (now that
you're using it, right?), it may also continue to pick winning
stocks, just like it had been doing over and over before.
Don't get me wrong; just because you have a great strategy for
picking winning stocks, it isn't going to preclude you from ever
having another losing trade. On the contrary, even the best
strategies 'only' have win ratios of 60%, 70% or even 80% (not
100%).
But if your strategy picks winners far more often than losers, you
can feel confident that the next stock it picks will have a high
probability of making money.
Pick and Choose
Being able to see how profitable your personal stock picking ideas
have been in the past is great.
But not everybody wants to create and test out their own
strategies.
Instead, you can pick and choose from proven, profitable strategies
that have already been created. From Growth stocks, to Value
stocks, to Momentum stocks, to Growth & Income stocks, and
more. That could also include Technical Analysis stocks, special
situation trades, or industry specific trades, etc.
The key is to know how successful it has performed in the past.
That means knowing things like the:
- Average Annual Return
- Win Ratio
- Average # of Stocks
- Holding Period
- Average Turnover
- Maximum Drawdown
- Average Winning Stretch
- Average Losing Stretch
- and more
Once you know all of the ins and outs of your strategy, you never
have to second guess it.
Because the 50-100 hours of testing that went into creating that
strategy in the first place: a strategy that picks stocks you like,
with a 70% chance of success, that was backtested over both bull
markets, bear markets, and everything in between; is unlikely to be
outdone by reading one extra news story or stressing over something
in the market.
And that's the point. Imagine devoting 100 hours of your best
thinking to EVERY stock you thought about buying. You'd feel pretty
confident about that pick. And that's what a thoroughly tested
strategy can provide - the best time-tested analysis applied to
every stock that comes thru, each and every time.
Peace of mind.
And a more profitable portfolio.
Where To Start
Discover for yourself how easy it is to develop your own stock
picking ideas and then backtest them to see how they would have
performed in various market conditions. Or you can pick and choose
from some of the best trading strategies that Zacks has already
created (including a strategy that has averaged gains of +67.4% per
year). It can all be done with our
Research Wizard
. And I invite you to give it a try for 2 weeks free.
Click here to learn more.
Thanks and good trading,
Kevin
Zacks VP Kevin Matras is our stock screening expert. He also
personally developed many of the built-in market-beating strategies
that come with the
Research Wizard.
To read this article on Zacks.com click here.
Zacks Investment
Research