The following is Stocescores commentary for the week and it does mention Noront; read it recognizing that their strategies are to look for stocks that provide for a good trade following their own rules. Thought you may be interested in reading it.

Picking good stocks should be very simple, but many traders put a lot of effort in to making it difficult. They believe that their success at making money in the market is based on their ability to pick the right stocks. So, they put a lot of emphasis on how they pick the stock to buy and often forget about the other components of the investment progress.

I think that the great traders and their great trades are based on very simple ideas, strategies that can be explained in one or two sentences. Last year, the best trades were shorts in the financial market. The idea was simple; short financial stocks that loaned money to marginal real estate purchasers.

But there is more to trading than just a simple idea, success is ultimately based on the execution of the idea and the reaction that the trader has when things go against them. I think that traders who focus their efforts on risk management, the exit decision and emotional control would do a lot better than those who focus on what to buy.

Let's consider a simple idea to highlight what I mean. Strong stocks have to go to new highs, right? When we think about the big winner stocks of the last few years, names like Apple (AAPL), Potash (POT) and Google (GOOG) come to mind. Penny stock investors might think of Noront (V.NOT).

All of these stocks have one thing in common. At some point in their upward trends, they hit new all time highs.

So, we can say then that all strong stocks must hit new highs. Does this mean we should buy any stock that hits a new high?

Probably not, for stocks that are reversing in to downward trends are also hitting new highs. What we want are stocks that are starting trends that will continue to make new highs after we buy it, so we need to add in some other criteria to avoid the stocks that have already made big gains and are likely topping out.

How about we look for stocks that are hitting new, all time highs after a period of sideways trading? This way, we focus on stocks that the market is obviously optimistic about but are only just discovering. Since the stocks are hitting new highs, there must be something going on that has investors willing to pay more than they have ever paid for the stock in the past. But, by only considering stocks that are breaking from periods of sideways trading, we eliminate those that have been bid up by emotional speculation.

AAPL did this on April 26, 2007 at $98.84. It eventually hit about $200.
POT did this on Jan 29, 2007 at $51.57. It eventually hit $240.
GOOG did this on June 5, 2007 at $518.84. It went to $747.
V.NOT did this on Sept 10, 2007 at $1.74. It rose to $7.

But what about those times when this strategy does not work? This is where the focus on risk management is so important. As traders we have to expect that we can not be right all of the time and it is what we do when we are wrong that will have a huge influence on our overall results. Avoiding big losses is essential to success, we need to have a means to not only pick the right stock but also pick the right point to declare the trade a failure.

I like to use a concept called inflection points which, simply, is the point where the buyers take control of the stock before the entry signal. For a stock purchase, it is the point where the stock stops going down and starts going up. This point establishes a floor price where the buyers made their stand.

On AAPL, this price was $89.60. This means that an entry at $98.84 had the potential to lose $89.60, possibly more if the stock gapped down through the support price. The risk to the downside was about 9%.

On the AAPL trade, the high was more than 100% more than the purchase price which meant the stock trade could have achieved a 10 to 1 risk reward ratio. However, most traders tend to sell their winners too early and fail to capture good portions of the upward trend. They fail to be adequately rewarded for the risk that they take.

Or, they hang on forever and watch their gains evaporate. AAPL went down to $110 in the two months after it hit $100, potentially taking away all of the gains that it had made from the original entry signal.

This is why it is so important to focus on good exit strategies and the emotional control to stock with winning trades. But again, most people just don't spend a lot of time working on these skills because they think that successful trading revolves around buying the right stock.

Is buying stocks that hit new highs from a period of sideways trading a good strategy? Only exhaustive statistical testing can answer that question for certain, although I expect it is a strategy worth considering. However, what everyone should realize is that it is not the entry decision that determines long term success as a trader. Traders also need to master risk management, the exit decision and their emotions if they are to have any hope of beating the market over the long term.