Trade Like a Boy Scout

03/04/2013 6:00 am EST

Focus: STOCKS

In trading as in life, it always pays to have to a Plan B, so veteran trader Brian Lund of BCLund.com counsels traders to know the charts of a few stocks related to those on their watch lists.

May of 1985 was tough for me.

It was the month of my high school prom and I had Debbie Olson in my sights. I had decided that she was the lucky gal who would accompany me to the dance. The day I was to extend to her this coveted invitation I put on my best clothes, threw an extra handful of Dep in my hair, and slapped on my father’s best cologne.

But I was too late. Phil LaMont had already asked her.

So how did I handle this rejection? Did I run home crying like a little girl? Did I drive my car past her house all night long to see if that jerk Phil was over there? Did I call her number ten times in a row until she answered and then hung up? Not as far as you know.

Instead I asked her sister to go. Unfortunately, she already had a date. So I asked her best friend, who apparently already had a date as well. Then I asked her cousin, who although didn’t yet have a date, was restricted by her religious beliefs from dating someone with more than two vowels in their first name. I assume that because she showed up to the prom with a guy named Brad.

The point is, no matter how much you prepare for a certain scenario to play out, sometimes you have to be flexible enough to look for secondary opportunities. This concept works the same way in the markets.

Your Watch List
Let’s say you’ve got a stock on your watch list, and one day, it just gaps up over your buy point. Your gut reaction may be to swear at the screen and run home crying like a little girl. But don’t. What you want to do is to look for secondary stocks related to your target stock that have not yet moved, but soon may in sympathy.

So if you are gunning for a 3D printing stock like 3-D Systems (DDD), and you miss the initial move, check out others in the same space like Stratasys (SSYS) or Exone (XONE) that haven’t moved yet, but may be setting up. You might even look at a “cousin” type stock like Proto Labs (PRLB), which doesn’t make 3D printers, but provides related services.

And it is always a good practice when developing your daily or weekly watch list to make sure you are familiar with and know the charts of two or three “related” stocks for each of your prime targets.

These types of secondary stocks will usually not move as much, and will fade quicker that the primary stocks so you have to be nimble and limit your trading to the short term. But if you think ahead and somewhat out of the box, you can get into these movers before the “hot money” hits and turn them for a quick profit.

By Brian Lund of BCLund.com

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