Listen to Price Action: AAPL vs RIMM

Apple (Nasdaq: AAPL) hit a new all-time high this week while Research in Motion (Nasdaq: RIMM; TSX: RIM) dipped to five-year lows. I happened to chat with an acquaintance who said they were still holding their RIM stocks purchased a few years ago at much higher prices. In the same conversation they remarked at how successful Apple has been. This reminded me of the importance of several keys to successful trading:

1. Listen to price action. It's nothing fancy, as Joe Fahmy said: just pay attention.
2. Know why you own stocks. As Larry Williams said: It should be to make money, no other reason.
3. Have a trading plan that explains entry and exit strategies.

If you can't do these things then you face unfriendly odds since most stocks lose money. Success is unlikely unless you seek clarity like Nicolas Darvas.

Getting back to the comparison, AAPL and RIM have been showing their hands in the charts. AAPL is a chart that illustrates strength, RIM has shown weakness. These patterns did not happen in a single day. There have been warning signs along the path. The observant traveler notices these things.

Since the overall market bottomed in early 2009 AAPL regained the characteristic uptrend pattern of short moving averages above longer MAs. Moreover, AAPL has gone on to make many new all-time highs along the way, which is a key trait of winning stocks. I've included both a Guppy Multiple Moving Average chart and a chart with a 10-ATR trailing stop. The difference in price action is quite clear.

In contrast, RIMM has never made a new all-time high since the market bottomed. Its MMA chart illustrates that it can't sustain an uptrend. Finally, once it fell below the trailing stop it never recovered.

Successful traders are rational people. Winners trade solely for the money, while losers get their kicks out of the excitement of the game. - Dr. Alexander Elder in Come Into My Trading Room

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