TRADING RULES

I have been successful with my approach to the stocks I want to look at to buy/sell. Since I revisited my old trading system, my whole portfolio is up 18.4% from June 9th until July 11th. The way I came up with this system is re-reading "How to Make Money in Stocks" by Wm. O'Neil. I had used his book in the past, but deviated from the trading plan and definitely did not do better with my personal trading plan and have done much better sticking to the IBD plan.

There are a lot of factors in selecting stocks to buy. I say that I am a chartist which means that I only buy a stock based upon what a chart shows me in relation to price and volume. However, I primarily base my decision to buy based upon a company's fundamentals such as earnings per share (EPS).

Here is how I select the stocks based upon a stock's fundamentals:
1. Use the IBD newspaper and look at "Stocks on the Move" or "IBD Timesaver Table."
2. Smart Select Composite Rating must be greater than 98 or 99
3. EPS must be higher than 90
4. Relative Price Strength must be higher than 80
5. Industry Group Relative Strength must be A or B
6. Sales/Profit/ROE A or B
7. A/D must be A or B
8. Beta must be 1.4 or higher as noted in the Stock Checkup at http://www.investors.com/

http://www.investors.com/ has already done all of the research for me when it comes to stocks with high earnings per share (EPS), if it's in a strong industry group, etc. I then am a "chartist" and I anlayze a chart as to when it is the best time to buy or sell.

So here are the buy rules: (price and volume are key)
1. Breakout from a cup with handle or any other base as described in the "investor education" section of http://www.investors.com/
2. Stock makes a new 6 month high and meets all the above criteria

Learning to identify the proper buy points (aka pivot points) are critical to profit. I try to talk about pivot points in this blog to help find them.

So here are the sell rules that need to be stictly adhered to:
1. Once your stock drops 8% below the proper buy point, sell it.
2. Once a stock gains 20% from the proper buy point, sell it. However, if the stock rose 20% within a 3 week span, hold it for at least 8 weeks.

That's it. That's my trading plan. Granted it means that I am in and out of a stock as it rises, but that can sometimes add up to more than just sitting in the stock. I just want to be out before any correction occurs and I lose all my profits.

I will try to add to this segment to give proper buy points/pivot points. If you look at ICE today (7/11/2007), it has just broken past a buy point/pivot point today at $162.57 so if you are into buying, here is your baby.

GOOD LUCK TRADING.
JD