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Showing posts from December 31, 2006

ABC OF STOCK SELECTION

OCEAN
Each letter stands for a criterion I use in stock selection.
"O" stands for observation. Speculation is largely observation--pure and simple. First, I've observed that higher-priced stocks make larger moves on a daily basis than lower-priced stocks. As a short-term trader, I'm not interested in percentage moves but in point moves. A 5% move in a 100 rs stock is much bigger then 10% move in 20 rs stock.
Second, look for situations in which you can put pieces together, whether multiple signals or recognizing how a long-term pattern has combined with a short-term pattern to create a higher-than-average likelihood for trend continuation.
One of the most important criteria in assembling a hit list is to observe which stocks outperform the rest --which stocks have high relative strength over the intermediate term.
Two shorter-term relative strength methods I developed for identifying the right stocks to trade are intra-day relative strength and day-over-day relative stren…

Stocks that can make you a millionaire

Identify stocks Motilal Oswal Securities Ltd. has been studying wealth creators in the Indian equity markets for over a decade. Every year its Wealth Creation Study looks at the capital markets over the past 5 years to discover trends in wealth creation. Here are some interesting insights, gleaned from these studies.

Qualitative and quantitative aspects of wealth creators (1991-1996 study I) The first study explains that wealth-creating companies have a substantially high ROE (Return on Earning) and ROCE (Return on Capital Employed). Wealth creators display a high correlation between ROEs and P/Es (Price-Earning ratio). It advises that there is an inherent margin of safety in buying a stock at a P/E ratio substantially lower than its sustainable ROE. Amongst other things, it reveals that mid-cap stocks have the propensity to create wealth faster than heavyweight blue chips but the surety of wealth creation is greater for large-cap stocks.

Good businesses, which get better (1992-97 stu…

SPECULATION AS AFINE ART

Speculation as A Fine Art
"There is no royal road to success in speculation....Those who make for themselves or others an infallible plan delude themselves and others."What is Speculation?"Before entering on our inquiry, before considering the rules of our art, we will examine the subject in the abstract. Is speculation right? It may be questioned, tried by the highest standards, whether any trade where an exact equivalent is not given can be right. But as society is now organized speculation seems a necessity.""Is there any difference between speculation and gambling? The terms are often used interchangeably, but speculation presupposes intellectual effort; gambling, blind chance. Accurately to define the two is difficult; all definitions are difficult. Wit and humor, for instance, can be defined; but notwithstanding the most subtle distinction, wit and humor blend, run into each other. This is true of speculation and gambling. The former has some of the eleme…

STOP LOSS ORDER

A stop loss order is simply a trailing "safety net" that you can attach to a stock buy. The purpose of a stop loss order is to keep you from being "trapped" in a stock that falls a ton of points. It is all done electronically and it is both easy to use and quite mandatory in our opinion.

Many times you will hear ..Know your exit before you go in. On the downside though. For instance there are going to be times when you make a trade and it goes against you. That is normal and it happens to every trader. The difference is that if your trade was fundamentally flawed (you bought a stock thinking it would make a short term run but it fizzled out instead) you should have a set predetermined price that you will let that stock fall to and ..you are out.

For instance lets say we think the XYZ company is going to fly because of a hot news release and we buy 500 shares. but almost instantly the thing starts backing up and soon we are down a couple points. Do you hold or do you …

technicle terms

Subject: [ISG:24010] All U Want 2 Know About Technical Analysis
Glossary
52 Week high
52 Week high is the highest price of a stock/security within the last 1 year.
52 Week low
52 Week low is the lowest price of a stock/security within the last 1 year.
Accumulation Distribution(AD)A momentum indicator that associates changes in price and volume. It is based on the premise that a price move is more significant with larger volume. When there are more buyers than sellers on a particular stock then it is under accumulation, but when there are more sellers then buyers the stock is under distribution.
ADXDI & ADX are used for identifying when a definable trend is present in a security/stock. That is, the DMI tells whether an stock is trending or not. The scale for the DMI is from 0-100. The Average Directional Movement Index (ADX) is a moving average of the DMI.
Breakdown
If the price of a security moves below the last know support level(price), it moves DOWN very fast as there is NO known suppor…