Pizza Inn Blasts Off, Raises Good Questions about Penny Stocks

by Darrin Donnelly on November 17, 2011

Darvas Stock - PZZI

Click on chart to enlarge.

As a Darvas System trader, I typically avoid “penny stocks.”  (I define “penny stocks” as low-priced stocks, anything under $10.)

The reason for this avoidance is that low-priced stocks are more easily manipulated and often swing wildly.

Following a trend is much easier when price action remains fairly stable.  In such conditions, you’re able to avoid getting whipsawed out of positions during “normal” pullbacks.

However, you can use a trend-following method like the Darvas System to profit with penny stocks.  It’s riskier and rarer, but every so often a penny stock comes along that would have worked perfectly with Nicolas Darvas’ method. [click to continue…]

Market Roars Higher, but Traders Need to Be Selective

by Darrin Donnelly on October 31, 2011

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Last Thursday, we finally got the big Follow-Through Day (FTD) we’d been hoping for since this rally began on October 4th.

The NASDAQ led the market higher with a 3.3% gain on heavy volume on Thursday.

Volume was not only increased compared to the Wednesday session, but it was well above average and the highest it had been in weeks.  This price-volume action left no doubt that the big institutional funds were participating in the rally. [click to continue…]

A Time for Caution

by Darrin Donnelly on October 17, 2011

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On the surface, this market appears to be in the middle of a major bull run.  Key phrase: “on the surface.”

Over the past nine trading sessions, the NASDAQ has rocketed to a 16% gain off of the low it set on October 4th.  It has retaken the 50-day moving average line and jumped past the previous resistance level of 2600 with no signs of trouble.  The other major indices have acted similarly.  The S&P 500 broke through its previous resistance level of 1220 on Friday and closed the week above that key mark. [click to continue…]

A Simple Formula for Success

by Darrin Donnelly on October 4, 2011

Most people have a very difficult time getting to the point.

Simply being concise is an attribute the vast majority of people lack.

The reason for this is because the more direct we are, the more responsibility we have to accept.  If we make it perfectly clear what it is we’re trying to do, we either do it or we don’t.  We succeed or we fail.  If we’re direct about our goal, it’s much harder to talk our way out of a failure.

This is why politicians love to use qualifying adjectives.  They HAVE to have some leeway on just about any goal they promise to achieve.

Let’s face it, most people love ambiguity.

But high achievers are different from most people.  (Surprise, surprise.) [click to continue…]

Always Have a Plan

by Darrin Donnelly on September 22, 2011

As I write this article, the Dow is down 450 points on a Thursday afternoon.  People on TV are screaming about a double-dip recession.  They’re also saying that Europe’s economy is falling apart and we’re on the verge of a global meltdown.

Wait…now the Dow is down 460.

There’s one thing consuming the investment world today: panic.

It’s times like these when you absolutely MUST follow a predetermined plan.

There’s no one way to successfully invest.  Warren Buffett-style value investors have proven beyond a doubt that long-term value investing works.  Nicolas Darvas-style trend traders have proven that their way works too.

The key is to find the proven investment strategy that fits best with your personal psychological tendencies and lifestyle desires. [click to continue…]

Why You Must Follow the Leaders

by Darrin Donnelly on September 20, 2011

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Not all stock market rallies are created equal.

While analyzing the general market and determining what kind of trend we’re in is an essential component of successfully trading with the Darvas System (or any trend-following system), such analysis doesn’t tell us the WHOLE story about the health of the market.

This is because some market rallies are actually rather weak when you scratch below the surface.

For instance, 2009 gave us a notorious “junk off the bottom” market Uptrend.  While the general market lurched higher thanks to several rounds of government intervention, homerun stocks were few and far between and trying to navigate through the whipsaws of the market produced significant losses for many trend traders.

How can you confirm that an Uptrend is legitimate? [click to continue…]