Boost Your Results with These Tips

09/06/2011 9:39 am EST

Focus: MARKETS

Linda Raschke

President, LBRGroup, Inc.

Linda Bradford Raschke gives an overview of her trading approach, shares how she builds a watch list, and offers some specific suggestions to investors and traders who want to improve their results in the second half of our exclusive interview with her. (Read Part One, which was published Friday, here.)

Kate Stalter: I wanted to just ask you a couple more questions.

The first is, you had talked earlier about having a shopping list at all times. Give us just a few quick tips for ways to put together that list. What are some smart things to be looking for?

Linda Bradford Raschke: I always like to see the stock that’s got good charts, where they’re making higher highs and higher lows.

That sounds pretty basic, but you want the stuff that everybody else wants…you just don’t want to pay up for it. You want to wait until it’s had a flush and shakes out the weak longs.

In terms of smart, obviously a lot of the companies that have had more of a global presence…I do believe that a good percentage of the growth in the S&P 500 has come specifically from companies that have good overseas presence, and the growth has been from overseas.

I would continue to stick with that theme. China has the cash, and they’re the ones that are going to buy the goods. I don’t know if that’s helpful there to you?

Kate Stalter: Oh, it is. It makes a lot of sense. Yes, that’s a very good reminder, in fact, when you are looking at the S&P stocks. Let me just wrap up with asking you to touch a bit on some of your writing on trader psychology and investor psychology, because I know this can be a stumbling block for many people. What should be doing to navigate the market these days, in terms of managing their emotions, or other things they should be watching out for?

Linda Bradford Raschke: Well, your biggest defense against getting caught and making emotional or reactive decisions, which is what always seems to trip people up, is to have some methodology that you feel comfortable with.

If you’re a long-term investor, and you like the Bill O’Neil-type of approach, great. At least it’s a structure and a framework. If you like the relative strengths, if you like momentum work, or classic breakouts from point-and-figure charts, it really doesn’t matter.

But you need to pick one or two types that are going to govern your approach. Then if you have a plan, it’s going to keep you from getting too reactive or emotional.

For myself, I tend to be more of a classic technician, in that I’ll use a couple things. I’ll use basic support and resistance levels on the charts. I’ll use sentiment readings when some sentiments get too extreme, and I’ll also use momentum work from market internals such as breadth oscillators, up volume, down volume ratios, those types of things.

All these are available to any long-term investor, and if it’s something as simple as looking at the Investors Intelligence Surveys once a week and making a note of that, that will kind of keep you in check.

So when you do start to see sentiment getting to an extreme, that in and of itself is not a buy or a sell signal. It might be saying you should move your stops or bring out that shopping list or something, but then you really want to be looking for the short-term support to form, the testing action, perhaps a little bit of a base if you’re looking to be a buyer, or a little bit of distribution at the top, if you’re more aggressive and trading the short side.

That’s my approach. But, gosh, people have latched onto all things under the sun. All I would say is, pick something. I don’t care if it’s point and figure, or Elliott Wave, or lunar cycles. You’ll find out quickly.

If you get something that you can develop consistency with, then stick with it. If your methodology isn’t working for you, if that lunar cycle approach is just not hitting the nail on the head, then you need to re-examine it and look at something else.

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