Common mistakes

After speaking to many people in last few months, I have realised that most of them make common mistakes when they start trading.

Here are few of them.

1. Sell when a stock is still going up.
2. Buy when a stock is going down thinking its cheap. They don't bother to investigate why it is going down. They keep the stock even if it lost more than 10%.
3. Most of them buy blue chips thinking they are safe bets.
4. They rely heavily on charts and fundamentals like P/E, EPS.
5. They buy because someone on a business news channel or in a news paper think it is good value.
   

Here is what they should be doing.

1. Hold the stock as long as it going up. Put a tracking stop loss of 7% from peak.
2. Sell if the value has dropped by 7% from your buying point.
3. Blue chips stocks may be good for reteriment where they give you 5 to 7% return in bull market. Explore new fast growing companies. There are the stocks which can give you 100% to 1600% return. Find couple of such stocks in a year and you can retire early.
4. Build your rules to filter the list of stocks you would like to buy and then use charts to support your decision.
5. If someone is recommending on a televison or news paper, it is already too late to buy. The stock may already have priced in the news. Do your research.
   

Stock picking is a beautiful art. Once you master it, you will be happy for your lifetime. Again these thing need time and effort. There is no such thing as free lunch.

Market update - 12 Feb 2008

Market did rally a bit on the Warren buffet news. Market monitor is still showing caution. Whether this rally will sustain, we will normally know in 4 to 5 days time.

There are no good candidates in EP and DT.

Market update - 11 Feb 2008

Market is still in red territory. It is sensible to be on sideline and preserve hard earned cash.

DT Candidate
ALD

EP Candidate
BIFF
FDI
OIL

Market Update - 07 Feb 2008

Last two days action has pulled market back into red. Lot of negative news are testing the confidence of the investors. Also earnings news are not helping either.

In bear market, momemtum based startegies like DT don't give great results. So better to sit on sideline with cash. You can make some money by shorting the stocks but I am no expert in that.

DT Candidates for knowledge purpose.
PLAA

EP Candidates
IVE
MRP
PTEC
VIY

Focus: PTEC

Episodic Pivots

All stocks which rally more than 100% have some episode at the start of each rally and also at the end of the rally. What we are looking for is to catch such stocks at the start of the rally. Episodic Pivots tries to scan for such stocks. Here is what is looks for

1. Stock which is up by more than 8% today on very high volume say 3 million.
2. These stocks should not be down by more than 25% in last 3 months.
3. Volume up by 300% over average volume.
4. Once you have the list, look for a positive news for the stocks in above universe.

Whether the news in step 4 will cause the stock to rally, this judgement comes with experience. A good practise would be look at the stocks that have rally between 200% to 400% to see what caused the move.

I will be posting the EP candidate list along with Double Trouble in daily market update.

Market Update - 05th Feb 2008

Market is back in red. I am on sidelines since December. I am using this time to learn another principle of stock picking. It is called Episodic Pivots. I will write about that in my next post.

Double Trouble candidates for today

GME.L - Penny stock, not a huge volume. Ignore.
MAMA.L - same as above
PLAA.L - Minning stock, probably up as Platinum prices are going up. Good volume. Keep an eye. Might be a good buy on weekness.

Market Update - 04 Feb

Market has been rallying for last few days but the ratio's are still cautious. There are new stocks breaking out. From old leaders, miners are still doing pretty well.

DT Candidate
GNG.L - This stock has been on decline recently. I will wait for few days to see if the rally continues. However as there is not much financial data, this might be a risky bet.