Our standard method, the trend trading system, is all about trends. It even concentrates on the best of them. Trading like a Zen master is almost the opposite of trend riding.
Essentially the Zen trader is going to bottom fish for the momentum stock.
Sounds really like Zen…
The fishing grounds are the small cap stock markets. In these markets are terrific over- and undervaluations common. There are two reasons:
- The smaller a stock, the more of them there are. The huge number of penny stocks simply accounts for a higher number of interesting chances.
- Wall Street and its analysts have to focus on bigger stocks, because large investors can’t put their money into small stocks. Small stocks fly under the radar of funds and banks.
One thing is typical in the penny stock and small cap markets. Price movements are much greater, measured in percents, than for larger stocks. Important is that these movements don’t let the price go down generally. No, these stocks are swinging up and down, similar to there bigger brothers and sisters.
This is the cardinal reason to be interested in small stocks and the main idea behind the Zen trading system.
Let me explain. In the world of large stocks precise analysis is demanded. Not by traders necessarily, but usually by investors. And yet, after a smart investor buys a stock, chances that it advances are miraculously about 50:50.
It looks like the thorough judgement of the company’s value didn’t pay off that much!
For small stocks things don’t look better. There is much more hidden and information about the company is often only scarcely available.
The consequence for the Zen trader is to ignore typical valuation metrics completely. Instead he uses something more simple, and that is the historic price high. If a stock price came down from a multiple of the current price, it is statistical cheap. Some stocks go up again and some not. Important is that such a fallen angel has statistically a huge potential.
To be in sync with market action, the Zen trader needs also some sort of timing, a buy signal. This buy signal is simply a new sign of life. If new trading activity occurs with a stock, resulting in exploding trading volume and jumping prices, something has happened. That’s for sure and exactly that is the Zen trader’s buy signal.
We also need a sell signal and that is the logical opposite of the buy signal. If trading activity fades, the volume dries out and prices begin to drift downwards, it is time to sell for the Zen trader. By the way, there is some wisdom in these simplistic looking buy and sell signals. They may make also sense for trading bigger stocks.
So, the Zen trader is statistically in flow with the market. If you find out that you don’t have the discipline of a trend rider, than be a Zen trader. Every trader and investor has to find the system that matches his trading personality.
There are just two ingredients missing. One is money management. For doing this sensible, only go long and only put a fraction of your trading capital into one stock. This is crucial! Small cap stocks move fast, in both directions. As an additonal rule, ignore stocks that are priced below a few cent.
Finally there remains one question. How does a real Zen trader find these interesting chances without getting trapped in the typical penny stock pump and dump scheme?
He climbs on the shoulders of others and relaxes!
By that I mean the real Zen trader uses the experience and hard work of someone else. Someone who honestly searches the markets for interesting trading candidates, to which you can apply the Zen trading system then. We can recommend this source:
Ourselves!
After deciding to throw out all complicated and questionable tech and fundamental analysis, you are beginning to walk the way of the Zen master.
Try it and enjoy the math of huge possible gains and limited losses.
