Tuesday, April 15th, 2008
20+ lessons from a trading review, part II
11. After a strong price gain, a correction to a rising 50-week moving average – and high volume bounce – is a strong buy signal
12. Buying and holding growth stocks – unless they’re rigorously researched – is potentially disastrous. Few companies can keep growing strongly. The huge winners are offset by the huge losers and the rest usually give back their big gains over three to five years. Use charts to take profits and get out.
13. Many good buys come after the stock is up more than 100 per cent
14. Big winners often have strong earnings growth now, but relatively lower earnings forecast growth. E.g. annual EPS might be up 150 per cent, but analysts are forecasting the next year’s EPS to rise 30 per cent to 40 per cent. Analysts are conservative and often underestimate future profit growth.
15. IPOs can be huge winners, but the best buys time is usually after it has traded for more than six months, or three months at the very least
16. Almost all stocks you buy will go higher than the price you sell out at
17. Some institutions are often selling at the best time to buy. While you want them on side – witnessed by an increase in volume — some funds will be selling for a number of reasons that don’t necessarily mean it’s a bad stock. They might be rebalancing, or selling based on valuations etc.
18. Strong stocks are usually trading above their rising 50-week moving average
19. The best time to sell a profitable position is when it falls below the last resistance level, or when it makes a climax top
20. Trading is a messy business: You’ll make heaps of mistakes: sell out too early, buy too late. The only key is to learn from your mistakes and persist. That also means you have to survive, so don’t bet too big and cut your losses.
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