Timing Is Wrong for Healthy Nokia

This week we are looking at some of the common mistakes that can hang a trader up on the journey toward profitability. Monday covered the mistake of trading too big. Tuesday we focused on the importance of going along with the prevailing trend. On Wednesday, we discussed the benefit of actually having a specific reason for owning a stock. Finally, the hazards of averaging down to avoid taking a loss were discussed on Thursday.

Today, we round out the Top 5 with the all-too-common habit of trying to be good at everything ... which relegates you to the status of Jack of all Trades, Master of None. If you don't have a preferred methodology, then how can you eliminate anything from your screen? It's impossible to get an edge on anything when you are trying to do everything. Instead of getting hung up in that mess, just decide what your game is ... and then play that game.

Are you a daytrader? Great! Then stick with daytrading and develop the discipline required to move in and out of positions intraday. No? Well then, focus on swing trading. Read Alan Farley's excellent work and learn from a master. Get used to trading against other traders and focusing on the ebb and flow of buying and selling pressure. Not into technical analysis at all? No problem. Then focus on value investing. Learn to tear financials apart and find the gems overlooked by Wall Street.

The bottom line is this: There are myriad ways to make (or lose) money as a trader. But you'll stand a much better chance of success if you simply choose an approach that interests you. If you are interested, you'll work at it. If not ... you won't.

Next week, we'll focus on some of the common traits of successful traders. But for now, let's check out some reader requests.

Nokia has been consolidating a solid move above the 50-day moving average that began in August. There is no sign that the uptrend is in trouble. Consolidation is a healthy development in the evolution of a price advance because it represents the ongoing dynamic of profit-taking meeting new buying.

As those who bought from lower levels book their profits, the buying by new investors effectively raises the average cost basis in the stock. This higher cost basis ultimately clears the way for even higher prices.

When a stock is close to the price at which you bought, there are no profits to book, and no losses to deal with. So you're more prone to hold the stock. That only changes when the price moves up ... or down ... significantly. So I'd rather wait for the stock to move closer to the 50-day moving average before buying.

I covered Men's Wearhouse last week and have been receiving a lot of questions about it. Here's the current chart. This stock has lost 20% of its market cap in the past two weeks alone. With the stock currently holding at $40, I'd look for at least another $2.50 of downside before buyers come in. If you are short, that's where you might consider taking some off the table.

Allis Chalmers has broken through an uptrending support line. I'd look at $15 as the next probable level of support. If the stock falls that low, consider buying, with a stop just below that level.

I've highlighted what appears to be an inverse head-and-shoulders pattern in Yamana Gold. The volume characteristics match a reversal quite well, with the heaviest downside volume coming last June at the left shoulder, a bit lighter downside volume in mid-August at the head, and lighter volume still in September at the right shoulder.

At the same time, we can see the heavy volume pushing the stock higher over the past couple of weeks. The measured move is to $17.50, which is derived by taking the depth of the pattern ($13 - $8.50 = $4.50) and adding it to the neckline ($13 + $4.50 = $17.50).

If you're long, that's where you might consider lightening up. And I'd put a stop just below $13. If the stock falls that low, consider it a failed pattern.

Level 3 Communications remains in a downtrending channel. The stock is just now bouncing off the latest lower low. If you like this company, now might be the time to buy the stock. The upside target is just around $4.90, so there is not much upside to the trade. But again, if you like the company, here's your entry point.

Be careful out there.