Hundreds of companies each year take the plunge and go public with their stock. Sorting through these and selecting which ones to purchase can be a real challenge. The below table shows criteria that we use in our stock selection. Since recent IPO stocks are often not profitable or have not been trading long enough to establish fundamental parameters, we place a higher weighting on technical parameters. Our approach to technical analysis focuses on price action, trading volume, trendlines, moving averages, and support/resistance levels.
High Stock Price
High Trading Volume
High Earnings Growth
High Sales Growth
Lesser Known Name
Deciding when to sell a stock is far more difficult than deciding where to buy. There are virtually endless scenarios that can play out after you buy a stock:
– The stock immediately drops in price
– The stock runs up quickly in price
– The stock goes up slowly in price, but then starts to decline
– The stock goes sideways for weeks or month
It is essential to have sell rules in place to deal with each of these scenarios! We use proven sell rules to help keep losses (which are inevitable in trading) at a minimum, while maximizing gains. Our sell rules also help manage risk, although risks can never be completely eliminated from trading.
One of the very best ways to improve your trading is to study your past trades after the fact. This allows you to be completely objective because the trade is already closed and you either took a gain, loss, or broke even. By evaluating what you did well and what you could have done better, you become better prepared for future trades. Ideally, your post analysis feeds back to your trading strategy and sell rules. You can always improve as a trader and the market is always providing new challenges. That is what makes trading so much fun! We perform post analysis on all of our trades, so you can learn a sound process to perform your own post analysis.
Reading books that are written by the best traders is a great way to increase your knowledge and performance. Why try to re-invent the wheel when someone else has already spent decades learning how to conquer the market? Here are some of our favorite trading books:
1. How to Make Money in Stocks by William J. O’Neil
2. Trade Like a Stock Market Wizard by Mark Minervini
3. Think & Trade Like a Champion by Mark Minervini
4. Insider Buy Superstocks by Jesse Stine
5. Momentum Masters by Multiple Authors