Overcoming Bias --- Use the Force!

Many times as traders we  have biases about certain stocks. Certain sectors have bottomed are oversold, are a solid investment etc.  In other words, we hindered by what we think a certain stock should do.  Too often this cacophonay of rumors, message boards, other traders' opinions and our  own need to be right drowns out what the market is telling us.

I was recently inspired by a story told by a successful member in a trader group I belong.  This trader reported that he had a friend who was an accomplished trader and money manager that had previously put up several digit returns managing a multi-million dollar account but was now  struggling.  The struggling trader was now down double digits in January and asked for advice.  The successful trader looked at the stocks the struggling traders had been trading and did something very creative.  He removed the names from the stock charts and asked the struggling trader friend what trade he would make.  

After going through the exercise for over 6 hours. They learned that struggling trader would have had a 90% success rate had he followed his system.  But instead of following his rules, the struggling trader was stuck trying to pick bottoms and making other knee jerk reaction type stocks.

This story inspired me.  Why not just remove the names and tickers from my charts and then do my scans. After all, Luke learned to use the fore with a blindfold.

So here's my Force Chart:

Stock 1

I ran a normal scan and then scrolled through charts until I came to one of interest.

What do we know about this stock?

It recently broke out in a very big way with huge volume.  From that we know that there was a fundamental change to this company.

Was it earnings? An FDA approval?  I don't know and that's the beauty of the approach.   Is there a trade to be made here?  Not under my rules  This is $8.00 over its breakout point.   Chasing a story would likely cause a loss.

What about this one?
Stock 2

This stock also saw a big gap on high volume.  This has the look of being earnings related but the prior day had a big range expansion day so, perhaps not.

 After the initial burst this stock has now settled in  I don't see this as being able to make a burst move that would last 3 days and it would be difficult to place a trade at this level.  To trade this stock, I would want to buy support by waiting until a test of 35 and buying that test.  At the current levels I don't see a trade here.

That analysis was easy to do.  But what if I had just read a detailed SeekingAlpha article by someone who said Stock 2 was his top pick and was surely headed for a double and citing some sound reasons.  we might be tempted to chase if the stock starts moving.

But to avoid that temptation, Use the Force.