This week on the Investing with IBD podcast, Jim Roppel of Roppel Capital Management shares his insights on what’s led to his trading success. Rather than reinventing the wheel, he studied everything he could about the methodology used by William J. O’Neil, the founder of Investor’s Business Daily. Specifically, he thinks about the liquidity in the names he chooses and how to handle stocks differently once he has a cushion.
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Protect Your Mental Capital In A Mushy Market
While indexes are right there at new highs, Roppel still thinks the market is a little mushy right now. It’s not unusual for the summer and is compounded by the percentage of stocks trading above their 150-day moving average lines (just around 40%). It’s important in those environments to make sure you protect your mental capital. Don’t let losses pile up and discourage you, because that could leave you unprepared for when the market eventually turns. A key to trading success is confidence.
He also shares that screening for stocks is easy. But controlling your emotions and building the discipline in order to handle the true market leaders is a much tougher skill to master.
Liquidity, Cushion And Getting Off The Razor’s Edge
When choosing a stock to buy, one of the fundamental blocks Roppel starts with is liquidity. He looks at the average daily trading volume multiplied by the stock price (the average daily dollar volume) as a starting point. His sweet spot is the $9 billion to $20 billion market cap that expands to $60 billion with five or six earnings beats. Of course that takes time, patience, and the emotional fortitude to handle the drawdowns that inevitably come with the larger moves. However, the trading success that comes from just a few winners can have life-changing results.
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While it might seem easy in hindsight to hold through a pullback to say the 10-week moving average line, the reality can be different. Especially since you will often be taking hits from multiple stocks at the same time.
Having a longer-term perspective also helped Roppel change his perspective. Moving from the need to watch every tick to capturing the bigger move can give you trading success without compromising quality of life. Not to mention that those true market leaders can elevate your lifestyle materially.
Trade Ideas: Cloudflare Stock, Dexcom Stock, Zoom Video Stock, Coinbase Stock
Jim ended with a few stock on his radar. Cloudflare stock, Dexcom stock, Zoom Video stock and Coinbase stock. He’s watching them for future entries because he believes that their fundamental stories could lead to further appreciation.
A huge amount of internet traffic is serviced by Cloudflare and the stock price confirms the story. The weekly chart shows a wall of up weeks that tells you institutions have an interest in the stock. The benefit
With a market share of 70%, and a duopoly in the space, they can’t be ignored. As many of the game developers use their platform, Unity Software stock doesn’t have to rely on catching the next big game. Their services will get used whether the games are a success or not.
Peiris had the stock shortly after it formed an IPO base and went on nice run. It’s been consolidating for most of this year but the move back above the 50-day moving average line is promising.
(On Thursday night, Cloudflare modestly beat quarterly views, while giving mixed guidance for the current quarter. NET stock fell Friday, closed well off lows.)
Thunderous volume caught Roppel’s attention on Dexcom stock’s last earnings report. With 2.4 million shares traded for this stock trading over 500, it’s the kind of action that should garner some attention. Especially since it was a 13% move out to new highs from nearly a year-long consolidation.
Recognizing the life-changing technology for glucose monitoring that Dexcom stock offers, Roppel doesn’t think the story is over.
Sometimes you need to know when to make an exception to the rules. Roppel’s understanding of the cryptocurrency market, including running a crypto fund, fueled his interest in Coinbase stock. He looks at it as the gateway that will make cryptocurrencies more accessible to more people.
But, it’s had a big drop from its highs and a measly Relative Strength Rating of 9. Not the pond he’s typically fishing in. Still, it has a legitimate growth story and triple-digit growth on the top and bottom line to back it up. Roppel might trade a bottoming base once every few years, and when he does it’s the attractive story and future growth potential that lures him in.
Zoom Video Stock
Likewise, Zoom Video stock has some overhead supply to work through, but it also has some strong triple-digit growth on both earnings and revenues.
Roppel already has a cushion on Zoom Video stock and is trying to play this out for an even bigger move.
Want More? Use IBD Tools To Help Your Trading Success
The New America often features a good overview of the fundamental stories behind innovative companies that you often hear mentioned on the podcast.
And, of course, there are numerous articles on the best stocks to buy right now updated regularly on investors.com for more investing ideas.
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