Have you noticed? Each stock has its own “price personality.”
Indeed, we can see on price charts that each stock behaves differently—just like people do. That’s because each stock is bought and sold by different combinations of market players and automated “black boxes,” for different reasons, at different times during the trading day, week, or month.
The New York Stock Exchange (NYSE), the most liquid exchange in the world, lists more than 8,000 securities. And I’ll bet you my duck slippers that each of these securities displays a dissimilar price pattern on its daily (or weekly, or monthly) chart.
Why do I care? Stay with me and I’ll explain . . .
You probably have a friend who is a good-hearted person. Still, at times, he behaves irresponsibly. Maybe you make a date to meet him at the movies, and he shows up a half-hour late. Or, maybe he doesn’t show up at all.
You surely have other friends who always arrive on time, are considerate of your feelings, and with whom you can relax—because you know they are responsible and their behavior is for the most part predictable.
If we tracked our first friend’s behavior on a price chart—his “price personality” would surely shoot higher (he showed up on time, on the right day) one week, and then lower (he was late or forgot your date) the next week. There would be gaps of time where he stayed in touch with you, and other periods when he didn’t return your phone calls.
A “price personality” chart of responsible friends, however, would depict clear, uptrending price patterns, with a few dips along the way (none of us are perfect).
One of my earliest lessons when I began to trade and invest back in the early 1990s, was to buy stocks that drew orderly patterns on their price charts. While there are no guarantees of future price behavior, I make more money with well-mannered stocks that display clear direction, than I do with rowdy stocks that scream higher one week, and make a dumpster dive the next. I quickly learned that stocks with orderly price personalities make more predictable moves: They offer clear entry signals, risk-management parameters, and profit-taking opportunities.
The daily chart of Camden Property Trust (CPT), a real estate investment trust (REIT), exhibits the characteristics of a poised, well-mannered price personality.
Camden Property Trust (CPT) Daily Chart
Chart courtesy RealTick
Camden rose nicely into the first of 2014 and proceeded to climb gracefully into an uptrend that lasted into September. The REIT dipped with the broad market into September and October, danced on the 200-day moving average (black), then neatly reversed her downturn and climbed back to—and above–her prior highs. Very clear, no big surprises. The best news: Camden has increased 31% to date this year, plus dividends.
Acorda Therapeutics Inc., (ACOR), a biopharmaceutical company, may be a good company. But if you look at its chart, it displays a much more erratic price personality.
Acorda Therapeutics Inc. (ACOR) Daily Chart
Chart courtesy RealTick
Like Camden, it moved in an uptrend the first of the year, but the trend’s moon-rocket angle was unsustainable, and Acorda soon tumbled to retrace most of that gain.
Acorda’s roller coaster pattern has continued for most of the year. I suspect most market players who have monitored its moves have felt a bit woozy. For the record, so far, Acorda returned 14% this year. (The company does not pay a dividend.)
Whether you’re a trader or investor, please remember that stocks are like people: each one will behave differently at different times. You may find that your relationships with your portfolio positions will be more enjoyable—and more profitable—if you stick with stocks that are well-behaved, and display orderly “price personalities.”
Keep green on your screen!