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Is there anything we can learn about trading from watching Tony Romo's entertaining and risky football style?
The answer my friends is very simple, learn to manage an entire game without making a mistake at the critical moments.
Today's installment from the series, 'Trading Lessons From A Hedge Fund Trader' will focus on CalAmp Corp. CAMP. as per our reader's request (David D) for research, available here at BehindWallStreet.com.
CalAmp Corp. CAMP is a red hot wireless and Satellite company. This company was a penny stock (under $5 per share) only 2 years ago. If you bought and held it since 2009 (when it was priced under $1) then you my friend, hit the jackpot on this stock.
CalAmp Corp. CAMP is a very interesting stock, it's almost as interesting as watching a Tony Romo train wreck or a Tony Romo spectacular play.
Let's take a look at a long term chart or CalAmp Corp. CAMP.
The answer my friends is very simple, learn to manage an entire game without making a mistake at the critical moments.
Today's installment from the series, 'Trading Lessons From A Hedge Fund Trader' will focus on CalAmp Corp. CAMP. as per our reader's request (David D) for research, available here at BehindWallStreet.com.
CalAmp Corp. CAMP is a red hot wireless and Satellite company. This company was a penny stock (under $5 per share) only 2 years ago. If you bought and held it since 2009 (when it was priced under $1) then you my friend, hit the jackpot on this stock.
CalAmp Corp. CAMP is a very interesting stock, it's almost as interesting as watching a Tony Romo train wreck or a Tony Romo spectacular play.
Let's take a look at a long term chart or CalAmp Corp. CAMP.
CalAmp Corp. CAMP had a price of $60 in 2000, and $0.50 in 2009 and currently sits at $23.78. The price pattern is very similar to Tony Romo's game, it's either feast or famine.
Let's take a look at the 1 year chart.
When a stock starts to look like this, you can simply ignore the fundamentals because the stock is in play.
Let's take a look at the 1 year chart.
When a stock starts to look like this, you can simply ignore the fundamentals because the stock is in play.
One thing to remember about the fundamentals is that the fundamentals always lag the price of the stock because you are looking at previous results.
Many analysts will start raising their price targets as the stock continues on its sky rocket ascent. The analysts have no idea where the stock is heading so they start raising estimates just so they don't look foolish.
In reality, no one knows where the price of the stock is headed.
Remember the fundamentals are simply another filtering tool, it isn't the be all and end all form of analysis. The fundamentals will tell you if the financial position is strong or weak.
When the fundamentals are strong and/or strengthening then you should have a long bias.
When the fundamentals are weak and/or weakening then you should have a short bias.
The current price of the stock on the open market is always the best barometer for the stock. The price will let you know if your analysis is right or wrong.
Trading Strategy for the In-Play High Flyer
1. Make a trade based on an optimal risk reward scenario.
2. Take profits along the way at predetermined intervals.
3. Put trade into theoretical risk free status as soon as you can.
4. Hold the remaining 1/2 to 1/3 of the position and ride that as long as you can.
5. Use the profits from this trade to fund the next trade and repeat this process as many times as you can.
This strategy will put you in the best position to succeed.
The problem with Tony Romo is that it appears like he is a guy who enjoys improvising during the play. Sometimes it works and he looks brilliant for that play. The problem arises when Tony Romo improvises at the critical junctures in the game.
The best thing to do with Tony Romo is to simplify the game plan during the critical moments in the football game. We are trying to stop Tony Romo from beating himself.
Many analysts will start raising their price targets as the stock continues on its sky rocket ascent. The analysts have no idea where the stock is heading so they start raising estimates just so they don't look foolish.
In reality, no one knows where the price of the stock is headed.
Remember the fundamentals are simply another filtering tool, it isn't the be all and end all form of analysis. The fundamentals will tell you if the financial position is strong or weak.
When the fundamentals are strong and/or strengthening then you should have a long bias.
When the fundamentals are weak and/or weakening then you should have a short bias.
The current price of the stock on the open market is always the best barometer for the stock. The price will let you know if your analysis is right or wrong.
Trading Strategy for the In-Play High Flyer
1. Make a trade based on an optimal risk reward scenario.
2. Take profits along the way at predetermined intervals.
3. Put trade into theoretical risk free status as soon as you can.
4. Hold the remaining 1/2 to 1/3 of the position and ride that as long as you can.
5. Use the profits from this trade to fund the next trade and repeat this process as many times as you can.
This strategy will put you in the best position to succeed.
The problem with Tony Romo is that it appears like he is a guy who enjoys improvising during the play. Sometimes it works and he looks brilliant for that play. The problem arises when Tony Romo improvises at the critical junctures in the game.
The best thing to do with Tony Romo is to simplify the game plan during the critical moments in the football game. We are trying to stop Tony Romo from beating himself.
Did you notice that Tony Romo excels at plays that look spectacular and those types of plays are not sustainable.
Did you notice that Peyton Manning isn't flashy. In fact, it always looks like Peyton Manning is always making the easy play. He specializes in reading the defense before the play even happens. He spends more time planning his next move and that greatly improves his odds of making the EASY play.
The easy play, or the low risk trade is sustainable. Peyton Manning still has monster stats and leads the league in TD passes because all of his little plays put him in position to make the occasional BIG PLAY.
There are times when it makes sense to be a risk taker and there are times when being a risk taker is not the prudent action.
Tony Romo needs to be able distinguish between the times when he should be a risk taker and the times when he should be risk averse.
Conclusion
The first thing to do is not to get too greedy. If you are sitting on a huge profit then make sure you take partial profits on your total position.
Do you remember what happened to Nortel, Enron or Blackberry? I'm not saying that CalAmp Corp. CAMP is going to turn out like those companies, I'm saying that most investors watched their stock go to the moon and then watched their paper profits turn into huge losses.
When the trading God's gift you with a penny stock that turns into a $23 stock then you have to say thank you and take your profits.
When the trading Gods also gift you with a huge gap (when a stock opens at a price way higher/lower than the previous close) then take partial profits.
People always say let your profits run but you will eventual need an exit strategy for all trades.
My philosophy for every trade is to put that stock into a theoretical risk free position (this is done by taking partial profits at predetermined intervals and then moving the stop so that in the event that you stop out, the result is that you still end up with a profit when you close out the position) as soon as you can and to hold 1/3 to 1/2 of the position as long as you can.
The most important lesson from this article is to NEVER EVER short a stock when it looks like the 1 year chart of CalAmp Corp. CAMP.
Did you notice that Peyton Manning isn't flashy. In fact, it always looks like Peyton Manning is always making the easy play. He specializes in reading the defense before the play even happens. He spends more time planning his next move and that greatly improves his odds of making the EASY play.
The easy play, or the low risk trade is sustainable. Peyton Manning still has monster stats and leads the league in TD passes because all of his little plays put him in position to make the occasional BIG PLAY.
There are times when it makes sense to be a risk taker and there are times when being a risk taker is not the prudent action.
Tony Romo needs to be able distinguish between the times when he should be a risk taker and the times when he should be risk averse.
Conclusion
The first thing to do is not to get too greedy. If you are sitting on a huge profit then make sure you take partial profits on your total position.
Do you remember what happened to Nortel, Enron or Blackberry? I'm not saying that CalAmp Corp. CAMP is going to turn out like those companies, I'm saying that most investors watched their stock go to the moon and then watched their paper profits turn into huge losses.
When the trading God's gift you with a penny stock that turns into a $23 stock then you have to say thank you and take your profits.
When the trading Gods also gift you with a huge gap (when a stock opens at a price way higher/lower than the previous close) then take partial profits.
People always say let your profits run but you will eventual need an exit strategy for all trades.
My philosophy for every trade is to put that stock into a theoretical risk free position (this is done by taking partial profits at predetermined intervals and then moving the stop so that in the event that you stop out, the result is that you still end up with a profit when you close out the position) as soon as you can and to hold 1/3 to 1/2 of the position as long as you can.
The most important lesson from this article is to NEVER EVER short a stock when it looks like the 1 year chart of CalAmp Corp. CAMP.
That is the only game breaking mistake you can make in CalAmp Corp. CAMP today.
Why? It's way too early to short that stock. You will get murdered.
If and when it goes down, there will be plenty of meat on the bone for a profitable short but don't be early because the second mouse gets the cheese.
If you want to see how I would structure a trade (with complete trading levels, targets and stops) for CalAmp Corp. CAMP then check out Profit Behind The Blog.
For information regarding stocks we do like, check out our Flagship Newsletter.
This is a cursory look at CalAmp Corp. CAMP and we are not making any specific buy or sell recommendation but merely voicing our opinion of the current situation. Each individual investor must conduct their own due diligence of both the company, the market sector as well as their own financial situation and risk parameters.
By Joel Laceda - October 11, 2013 BehindWallStreet.com
Why? It's way too early to short that stock. You will get murdered.
If and when it goes down, there will be plenty of meat on the bone for a profitable short but don't be early because the second mouse gets the cheese.
If you want to see how I would structure a trade (with complete trading levels, targets and stops) for CalAmp Corp. CAMP then check out Profit Behind The Blog.
For information regarding stocks we do like, check out our Flagship Newsletter.
This is a cursory look at CalAmp Corp. CAMP and we are not making any specific buy or sell recommendation but merely voicing our opinion of the current situation. Each individual investor must conduct their own due diligence of both the company, the market sector as well as their own financial situation and risk parameters.
By Joel Laceda - October 11, 2013 BehindWallStreet.com
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