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Mikey's Short Term Trading Rules

1) Make up a list of stocks, commodities or ETF's to trade. This list should be names that have good earnings and high relative strength.
2) Monitor this list and throw out the weaker names
3) Buy only stocks or ETF's that are intermediate and daily up (green) and the market is Daily and intermediate term up (green)
4) Buy pullbacks on these stocks to the 20 and 50 day averages
Usually you get 4 to 6 20 day pullback buys and 2 or 3 50 day pullback buys in an intermediate term trend
5) More agressive traders can buy the 7 day average in the first 3 to 8 weeks of the uptrend.
6) Buy pullbacks not runups. A buy should not be easy or exciting but difficult and somewhat scary. DO NOT CHASE
7) Place stop at 5% below the buy price. Do not remove
8) Sell 3 to 5 days after the stock price takes out its most recent 2 week high with at least 15% gains
9) Uptrends that are 12 weeks or more may be ripe for a correction. The first 2 pullbacks to the 50 day are usually safe.
Intermediate term uptrends and downtrends generally last from 8 to 16 weeks with 12 weeks being the norm.
10) Shorting is a viable strategy in downtrends for experienced traders only. In general, reverse the above rules
11) Tweet Mikey @themarketshadow with questions or ideas

Thursday, August 19, 2010

Fundamentally speaking..Or the Titanic approach

The stock market can be analysed by fundamentals or by technicals. Fundamental analysis of a business involves analyzing its financial statements and health, its management and competitive advantages, and its competitors and markets. When applied to futures and forex, it focuses on the overall state of the economy, interest rates, production, earnings, and management.

When analyzing a stock, futures contract, or currency using fundamental analysis there are two basic approaches one can use; bottom up analysis and top down analysis. The term is used to distinguish such analysis from other types of investment analysis, such as quantitative analysis and technical analysis.

Fundamental analysis is performed on historical and present data, but with the goal of making financial forecasts.

The problem with this approach is that it is backwards looking. It will not spot changes that are taking place in the economy because the data it uses is already history. Most analysts look at what is happen and say it will continue to happen. They will not change their opinion until they have the raw data to do it. By that time the stock has crashed. Here is a recent example:

VISA



Notice the sudden change in direction. Holders of this stock have not been told to sell. This was a favorite of Cramer's. Now the shareholders are trapped and are praying because the fundamentals are still good. That is the way good fundamental stock end.

When you hear the stock reports on various companies the report you will hear is usually a list of fundamental reasons why the stock is doing well. The public is exploited with these reasons. Most of the time everything is just fine but when it changes LOOK OUT. They will never tell you to get out, It is just like riding the Titanic, everything is first class until you hit the iceberg, then you sink. Does this sound familiar???

There is another way to analyze stocks and that is technical analysis. It uses price action to analyst future direction. I will talk about that approach in my next blog.

Mikey
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