Fundamental Analysis and Position Trading: Evolution of a Trader

CHAPTER 19

Getting Started in Position Trading

How do you get started position trading? The method shares many of the same entry techniques with buy-and-hold investing. In fact, it is a good idea to reread Chapter 2, “Stock Selection.”

Let us begin with this idea from Chapter 2: “Stocks that drop 50 percent or more outperform the following year 68 percent of the time.” That is a wonderful tip that puts the odds in your favor. Ann Taylor, from the prior chapter, reached a high in September 2008 of 27.55 (about a year before I bought). The stock bottomed in March 2009 at 2.41 for an astounding skydiver freefall of 91 percent. Of course, the 2007 to 2009 bear market pummeled many stocks, leaving value players salivating at all of the opportunities.

However, you have to be careful. I bought Molecular Insight Pharmaceuticals (MIPI) at 4.81 in July 2009. At the time, they had five drug compounds in various stages of development, with three of them in phase II trials. Reading the information on their website made it sound as if FDA approval would be easy. It never is.

On September 17, I changed my opinion on the stock. Here is what I wrote about the trade in my notebook. “Sell reason: Bottom of symmetrical triangle, and I have changed my mind about this stock. I do not feel it has ‘block buster drug' status in any of its compounds and thus is not a good long-term holding. It is not in phase 3 yet, so the risk of failure is too high here.”

I sold at 5.20 for a net gain of just 8 percent. ...