Rules of Trading

At current times with Brokerage, 401K's, and IRA Accounts being cut in half many people are wondering where or not their fundamentals for stock picking are right. Some might say Stock picking is blind luck using examples of the monkey experiment tested at Stanford and other occurrences. This would be a naive statement as in the long run unless you have a list of Rules in which you Trade by you will never be a winner. So the following are my own Rules of Trading in which I have complied from trial and error and both success and failure. The first rule and most important is Buy Damaged Stocks, Not Damaged Companies. Do your homework, research the company. Invest in best of breed companies and note that there is always a Bull Market somewhere.  Right now that would have to be among Day Trading and Chinese Based Companies. Always leave 5-10% of your portfolio value in cash so your prepared if stocks drop to buy. When valuing a company always check the P/S. If the P/S is above 10 then the stock is momentum priced. Only buy Momentum stocks in a strong market, so in current times avoid it. Its okay to buy below 10, but a P/S between 3-5 is best. Below 2 reflects value priced stocks. Next indicator to check is the 50 Day moving average. Stocks are on a downtrend if it is below while they are on an uptrend if the value if above. Check the PEG Ratio and EPS to makes sure the company is making money. Look at the Balance Sheet to check for company debt and quarterly earnings. Its a good quota usually to not buy companies in debt unless they have reported major investment projects within their own company. For Daily Volume of a Stock make sure it is at minimum above 100,000. Above 1 million is the best. Makes sure the company is at least 30% institutionally owned. Also make sure there are at least 4 analysts following the stock as sufficient analyst coverage is necessary to create investor interest. Finally when researching stock you need to ask yourself a series of questions. First on the fundamentals you need to ask: What is the Companies Business? Is it sound? Is it growing? Price History: How much have other investor been willing to pay for the stock? Price Target: How much are investors likely to pay for the stock in the future? Catalysts: What catalysts will change investor perceptions of the stock in the future? Comparison: How does the stock compare to others in its industry? If you follow these simple steps and make sure that your company fits the quota then you will always find a winner.

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