Yahoo! Back on Top

This week, we are looking at some of the traits shared by successful traders. On Monday, we considered the notion that successful traders know what they are successful at. They have a clear definition of their trading style. They can describe their preferred time frame, trading methodology and approach to research. Most important, there is an inherent compatibility between time frame, methodology and research. They fit together.

Yesterday we discussed what should be obvious -- that successful traders all measure success in the same way. They just want to make money. They aren't so concerned about always being right -- especially if they must risk losing a bunch of money in order to be proved right. They understand that at the end of the day, the ultimate arbiter of "right" and "wrong" is the trading account balance. Everything else is just noise and cocktail conversation.

Another trait shared by successful traders is that they are students of the market. The best traders are constantly trying to learn more. They never feel like they know it all.

They understand one basic difference between trading and virtually any other profession. In any other profession -- be it law, medicine, professional sports or just general business -- one's success will typically generate a reputation of success that makes it easier to remain successful.

A top-notch lawyer with a reputation as a winner will attract the best cases and will have the necessary resources to prosecute those cases to reach a favorable outcome. An Internet business with a cutting-edge project will attract the best minds in the industry, which will in turn enable that business to stay in the lead. Success begets more success.

Not so in trading. The market is in awe of no one. In this electronic age of trading, nobody really knows who is on the other side of the trade. Most trading is done in anonymity, so a successful trader can't really capitalize on a reputation of success to carry him through a mediocre position.

Each trade stands on its own. As such, successful traders are constantly studying the market and trying to learn more ways to achieve success.

Do you consider yourself a student of the market? If not, why not? Do you really know more than the best minds in the game?

OK, let's look at some charts.

Yahoo! paused for a rest about a week ago but is now back in rally mode. I don't like to buy stocks after they've made strong advances for two consecutive days, and that's what I'm looking at now. I'd view $29 as current support for YHOO. I'd wait for a pullback before buying and would set a stop just below support.

Goldman Sachs ran up to a new high earlier this month before pulling back to $213. After the last couple of days, I'd view $213 as short-term support for the stock. If you own GS, try keeping a stop just below the lower Bollinger Band; if the stop is hit, we could see a pullback to below $200. No sense sticking around for that.

This weekly chart shows McDonald's moving above $52.50 a couple of months ago. The safest buy point would be on a pullback to test the breakout level. While this series of higher highs and lows could continue without a deep pullback to test the breakout level, I'd be patient. This stock does not move so fast that you risk letting it get away from you.

Yum! Brands rallied above $34.50 back in early October before gapping up to $38. Now the stock is churning between $37 and $38 on declining volume. While this type of flag pattern can often lead to new highs, I'd be careful and protect my capital with a stop just below $37.

This weekly chart shows Eagle Bulk Shipping in a nice, solid uptrend. As long as the stock remains between the middle and upper Bollinger Bands, I'd suggest keeping a loose stop just below the 30-week moving average. If that stop gets hit, then this cruise is coming to an end.

Be careful out there.