Follow the strategy!
If you bought a stock and it goes down the next day while analysis shows this stock is
still bullish - buy more shares of this stock and consider the purchase an independent
trade.
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Do not trade stocks with a large
bid-ask spread. If some stock looks very attractive - try to buy it at the price between
bid and ask. Use the limit order in this case. Remember: a transaction cost of more than
3% will kill any good strategy.
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Important!
If you see an unusually large positive price change (> 6-10%) during the first or
second day, sell this stock early. See the e-book Short-Term trading
Analysis for the corresponding statistical
analysis.
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It is helpful to read the headline
news about the stock. It is very good when bad news had come out already. Do not be afraid
of a bad earnings report, analysts downgrading, or bad news about an industry. Stock can
go up anyway. Short sellers will close their positions and bargain hunters are always
ready to take a risk.
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Try to buy equal amounts of shares of
stocks. The smaller the price, the larger the risk. Do not put a huge amount of money in
small stocks.
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Do not hold stocks for a
long time if they are on the downtrend.
If you miss the local maximum, the stock may shortly drop, and
your loss will be large.
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Use on-line brokers to reduce
commissions. If you are buying 100 - 200 shares of stock, commissions should not be larger
than $10.
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It is better to have a real time quote
service. Some brokers give you this service for free. We like Datek Streamer. (http://www.datek.com)
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Write your results in a spreadsheet.
Calculate your average return R and standard deviation S.
Try to keep the ratio of S/R as small as possible. If it
is increasing over time, think about your mistakes.
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You are not a computer and your
psychology can make results better or worse than average. Many times you will sell stocks
too early and you will not buy some stocks just because you do not like them. It is OK
when your decisions are based on your experience or on additional analysis. It is bad
if they are influenced by pure fear. Analyze your mistakes. S/R ratio is
a good tool for this analysis.
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If you are very sure about a stock,
you can keep it longer. But we don't have any idea how you can be very sure. The only sure
thing in the market is uncertainty.
If you want to hold stocks longer - place a stop order closely to current price.
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