Using Scans To Help With PATIENCE

Listen, it's hard sometimes to WAIT to buy a stock.

Maybe it's a stock that recently reported great quarterly results. Or perhaps a friend has given you a tip and money is burning a hole in your pocket. Everyone must do what's comfortable, but in my experience, impulsive buys almost never work out. There needs to be a plan and the plan needs to be followed. One way to plan is to follow simple scans that yields results likely to lead to trading gains - or at least will help, hopefully, with minimizing losses.

At EarningsBeats.com, we have a handful of predefined scans that can be run against our various ChartLists. One of my favorites is our Downtrend Reversal scan. When stocks trend lower, they tend to print lower highs every day, so a reversal would occur after a stock has trended down a certain number of days consecutively, and then reverses by printing a higher high. I ran this scan (but without requiring a higher high) on Tuesday after the market closed and two stocks from our Strong Earnings ChartList (SECL) were returned. One was LivePerson, Inc. (LPSN). Here's the chart:

Enter LivePerson, Inc. (LPSN):

I've numbered each day where a lower high printed and you can see that LPSN has set a lower high 7 days in a row. We haven't yet seen a reversal on this one, but LPSN is nearing critical gap support at 10.12. Monday's low was 10.20, so we're getting really close. Just 7 days ago, LPSN hit an intraday high of 14.49. It had lost more than 4 bucks, or roughly 30%. Whether LPSN ever produces a solid trading gain on the long side isn't really what's important here. What's important is that buying LPSN at the current price, near key gap support and its 50-day SMA is a MUCH better reward-to-risk trade. It's easy to impulsively buy when a stock like LPSN is at 14+, seemingly going higher every day - that is, until we buy, right? Then the 7-day swoon takes place and we wonder if we'll ever break even. Trading is never easy, but patience and discipline will go a long, long way towards helping you overcome the odds and make money more often.

Happy Trading! Tom Bowley Chief Market Strategist EarningsBeats.com Better Timing. Better Trades.