The Zacks Analyst Blog Highlights: Apple, Netflix, priceline.com, SanDisk and Caterpillar

Sep 08, 2011, 09:30 ET from Zacks Investment Research, Inc.

CHICAGO, Sept. 8, 2011 /PRNewswire/ -- Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include: Apple (Nasdaq: AAPL), Netflix (Nasdaq: NFLX), priceline.com (Nasdaq: PCLN), SanDisk (Nasdaq: SNDK) and Caterpillar (NYSE: CAT).

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Here are highlights from Wednesday's Analyst Blog:

Why You Need a Trading Strategy

Are you missing the big stock moves?

How many times have you missed the surge in a hot growth or momentum stock like Apple (Nasdaq: AAPL), Netflix (Nasdaq: NFLX), or priceline.com (Nasdaq: PCLN)? Remember saying to yourself, "If I just had a system to scan and screen for these plays before they double and triple!"

Or, maybe you prefer a combination of value and cyclical growth but somehow missed the nice moves in SanDisk (Nasdaq: SNDK) or Caterpillar (NYSE: CAT) as they drifted in apparent neglect, under the radar, before they exploded for 25%+ gains once investors rediscovered their earnings stories.

But where do you find such a system that can detect these moves early? If it's all about the fundamentals, which method is consistent enough and easy to follow so that we can build a solid portfolio of winners over time?

And if it's all about the charts, there are dozens of indicators and software packages that all seem to have a couple of things in common -- either they try to predict future price based on subjective patterns, or they are trend followers that only get you in after a significant move.

The bottom line here is that you definitely need a simple and objective data-driven system that can quickly and easily organize stocks into buy, sell, or hold categories -- before the big moves happen. This is how the top trading firms and hedge funds on Wall Street produce such superior, market-beating returns year after year.

This first article in series will address the significance of using a proven and robust system to capture these moves and returns. If you are in the least bit of doubt about why you need a system to beat the market, you won't be after reading this guide.

And at the end, I'll introduce a superior system you can start using immediately to generate profits in any market environment.

What Happens If You Don't Have a Trading System

There are many ways to carve profits from markets. But all successful investors and traders use a coherent and consistent system.

Such a system will contain a set of methods with clearly defined buy and sell rules that allow them to find winners, ride out rough patches, and come out ahead over the long run.

Let's explore the overwhelming evidence that proves investing and trading without a system is a loser's game.

The Proof from Trading "Statistics"

The failure rate of entrepreneurs in any business is surely north of 80% -- and it's even worse for one of the toughest occupations on the planet, day trading. Retail brokerage accounts for equities, options, futures, and currencies are opened with an average of $15,000 and drained to zero at an alarming rate within a few months as amateurs try and play a professional's game.

And the "pros" here -- the ones who do survive over time -- are not simply those with Wall Street connections, money, and access to the best information and the fastest computers.

Successful professional traders will tell you that they can duplicate the returns of the big hedge funds from their home office, and with no "connections," if they work hard and follow simple plans with clear rules and ruthless consistency.

Trading is difficult because it pits our emotional, reactive brains against rapid price movements and immediate threats of financial loss as players swing markets back and forth.

The emotional swings are exacerbated the greater the leverage involved, both for the individual speculator and the market as a whole. As they say in the Chicago trading pits, the secret to making a small fortune in commodities is to start with a large one.

Failure among the pros is even high. Many have gone for decades carving profits from a single type of "edge," only to watch their fortunes vanish as they are blindsided by changing market conditions.

It takes some simple, yet uncommon, skills to succeed in both short-term trading and long-term investing. A disciplined and adaptable mind set and the ability to make and follow detailed plans are tantamount.

The Natural Born Trader -- An Impossible Standard

The head of one New York proprietary trading firm, who has actually turned away former investment bank traders from his shop, says that 95% of the traders who apply to trade for him, or even to enter his training program, never make it past the second interview.

He has high standards because he knows how hard it is to succeed and how rare the qualities are of the person who can be systematic and disciplined in their approach.

Everyone marvels over the master of so-called "Market Wizards" and wants to be just like them. And we think there's something wrong with us if we are not.

But the truth is that few successful traders are born. And the greats who achieved massive wealth may be statistical outliers. The reality is that, for most, trading is very hard work. A difficult, unnatural skill-set must be internalized with repetition, dedication, and discipline.

The only alternative to pouring over charts, research, and news all day is to have a proven system that gives you clearly defined buy/sell and risk management rules. Still, to follow this system requires dedication and discipline. Let's move on and see how the professional risk-taking houses do it.

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Zacks Equity Research provides the best of quantitative and qualitative analysis to help investors know what stocks to buy and which to sell for the long-term.

Continuous coverage is provided for a universe of 1,150 publicly traded stocks. Our analysts are organized by industry which gives them keen insights to developments that affect company profits and stock performance. Recommendations and target prices are six-month time horizons.

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