Page 440 - THE MARKET WHISPERER

436 PART 12 - Choosing a Winner Stock

the attention of the investing public and traders. While investors and day

traders “acclimate” to the stock, institutional traders who pushed the price
higher are selling it to you in mega-volumes. Slowly, the price uptrend
calms down, day traders stop playing, institutional buyers are generally

out of the picture by now, volumes drop, and the price begins to plummet

back to its natural position.

SMART We never “marry” a stock for long periods. We trade in
MONEY it during interesting timeframes and abandon it when
volumes drop and its price returns to its natural and less
interesting state.

How do investors behave? Let’s take, for example, AIG, which began at
$12, spiked to $55 and pulled back, at least for now. Most investors did not
enter at $12. Very few of them held the stock before the price began to rise.
The “lucky” ones discovered it at around $20 or even higher, and rode it
up to $55. Were they pleased with their success and realized profits at that
point? Mostly, no. Greed drew them in further. When the price dropped
all the way to $35, did they realize profits? On the contrary: they started
to “get smart.” They convinced themselves that they “know” the stock,

and are sure it will move back to its previous high. So now, they buy more
shares at $35, planning on making easy money when the stock repeats its
highs. Eventually they discover that the price is continuing to move down,

below their original purchase price, and they end the trade at a loss.

It should come as no surprise to you that this scenario repeats itself
several times throughout the year. It also happens to more experienced
investors. Every year we will meet “the public’s favorites” along with the
investors and traders who “know” the stock, conclude they are experts on
its behavior, and find themselves well on their way to losing money.

Intraday Search for Stocks

I find about one half or slightly more of the stocks I trade in during the
trading day by staying tuned to several sources. The most important for
me is the online trading room where I trade together with hundreds of
other traders every day. Many of them present interesting stocks from their
watch lists, or stocks they identified during trading hours. The suggestions
are inexhaustible! The hard thing is to know which ones to choose.