27 September 2012

Proven Facts for Stock Market Investment

  • Cut losses early and always sell worst performing stocks first.
  • Don’t make emotional decisions and show perseverance in long term.
  • Start with small investment and do some research work every week.
  • Don’t invest in volatile market as a beginner.
  • Diversify your basket but not in too many stocks because you can’t keep track of all.
  • News will tell you the opinion. Check the charts for facts and historical data.
  • In last 45 years, best stocks were at $20-30 before they went to double or triple.
  • Look for stocks with annual earnings growth rates of 30% or more and ROE’s of 17% or higher.
  • Use Accumulation/Distribution rating. A or B rating shows stocks being bought, C shows neutral and D or E shows being sold.
  • Check the stock breaks out: volume should increase 50% above its average.
  • Use “buy high and sell higher” instead of “buy low, sell high”.
  • A typical bear market will decline 20% to 25% from its peak price.
  • In bear market a “follow-through” occurs when one of the indices closes up 1% or more with a jump in volume from the day before. This confirmation will usually happen on the fourth to tenth day of the attempted rally.
  • Psychological indicators like the Put-Call Ratio can help confirm changes in the market’s direction.
  • Look for hidden value like an unusually large amount of cash in the company or property carried on the books at cost, which is below the current market value.
  • The new market leaders had P/Es that significantly exceeded the rest of the market (31 times the average).
  • Avoid stocks that have a Relative Price Strength Rating below 80 and don’t accept loss of more than 8%.
  • If the stock moves up 2 to 3% in price from initial buy and if it still looks like it is performing well, follow up and buy more.
  • Don’t sell and take a profit if your market leading stock is up 20% to 25% in only 2 or 3 weeks.
  • Sell a stock if the earnings per share show a major deceleration in growth for two quarters in a row.
  • If stock advances a significant distance over many months and has formed several bases during the process, the fourth time the stock breaks out of a base (“fourth stage” base) it probably should be sold.
  • Use Investor’s Business Daily in physical form or online.
  • Do volume-price analysis. Uptrend and Downtrend with good volume is good for long and short positions respectively.
  • Don’t enter or change the positions with low volume even the price movement is good.
  • Regularly check the open interests in Option market.
  • Stock price always tend to fill the gaps of volume.
  • RSI, Stochastic, MSI etc. work below 20% and above 80%
  • Graphs using Fibonacci series like Fibonacci retracement etc work very well these days. Very few people know about this.
  • Have a stop loss even if stocks are going up, so that when it comes back, you book some profit.
  • Don’t average when going down but build the positions when going up.
  • Check for stakeholders satisfaction level with the company, whether it is employee or customer.
  • Aggregate all the latest news and facts. Separate them in positive and negative effects. Give them importance rating and conclude the result for bullish or bearish market.
  • Companies with bonus or split shares and retaining the profits for further investment is better than those giving dividends.
Conclusion: Most of the brokers’ advises don’t work. Read newspapers and magazines in neutral way and analyze yourself. Losses will teach you how to invest in better way. Have patience and improve your emotional intelligence.
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