Notice: This site and its methodology work best for those people
that can act promptly and without hesitation executing
the golden rules and general notes listed below. It is
also for those that are preferably on real-time quotes.
Many stocks are listed in the nightly newsletter and
only those that move quickly, on heavy volume, through
the trend lines and buy points, should be considered.
In addition to these 10 rules, please see notes below: And if you are new
to trading or investing please see the paragraphs with the * at the bottom.
Dan's 10 Golden Rules
1. Make sure the stock
has a well formed base or pattern such as one described on this web site
and can be found on the tab "Understanding
Chart Patterns" on the home page, before considering purchase. Dan
highlights stocks with these patterns in his newsletter.
2. Buy
the stock as it moves over the trend line of that base or pattern and make
sure that volume is above recent trend shortly after this "breakout" occurs.
Never pay up by more than 5% above the trend line. You should also get to
know your stock's thirty day moving average volume, which you can find on
most stock quote pages such as eSignal's quote page.
3. Be very quick to sell your stock should it return back under
the trend line or breakout point. Usually stops should be set about $1 below
the breakout point. The more expensive the stock, the more leeway you can
give it, but never have more than a $2 stop loss. Some people employ a 5%
stop loss rule. This may mean selling a stock that just tried to breakout
and fails in 20 minutes or 3 hours from the time it just broke out above
your purchase price.
4. Sell 20 to 30% of your position as the stock moves up 15 to 20%
from its breakout point.
5. Hold
your strongest stocks the longest and sell stocks that stop moving up or
are acting sluggish quickly. Remember stocks are only good when they are
moving up.
6. Identify
and follow strong groups of stocks and try to keep your selections in
these groups
7. After
the market has moved for a substantial period of time, your stocks will become
vulnerable to a sell off, which can happen so fast and hard you won't believe
it. Learn to set new higher trend lines and learn reversal patterns to help
your exit of stocks. Some of you may benefit from reading a book on Candlesticks
or reading Encyclopedia of Chart Patterns, by Bulkowski. These books can be found
on our RECOMMENDED READING page on the website.
8. Remember
it takes volume to move stocks, so start getting to know your stock's volume
behavior and then how it reacts to spikes in volume. You can see these spikes
on any chart. Volume is the key to your stock's movement and success or failure.
9. Many
stocks are mentioned in the newsletter with buy points. However just because
it's mentioned with a buy point does not mean it's an outright buy when a
buy point is touched. One must first see the action in the stock and combine
it with its volume for the day at the time that buy point is hit and take
keen notice of the overall market environment before considering purchases.
10. Never
go on margin until you have mastered the market, charts and your emotions.
Margin can wipe you out.
Dan's Trading Tips
Note: If you are new to trading or investing, I suggest reading these rules
many times over until they become ingrained so you can act without emotions.
Stocks that breakout and move up with tremendous volume and close near the
highs of the day seem to work out best. However many stocks that move up 15%
or more on breakout day often fail. You'll just have to watch your stock's
action like a hawk and get to see and understand these things over a long period
of time. If trading were easy everyone would be making millions. It's not;
it takes years and years of hard work and long hours.
Many traders employ a half hour rule, meaning that for the first half hour
of the day many traders do not buy any stock that gaps up in price. If the
price holds after the first half hour then often many traders will step in
a buy the stock. I find this rule works good after the market has moved up
for few strong weeks and is not very effective at the start of a new strong
move.
If its earnings season then it's an absolute must that you know the date your
company reports its earnings. Many traders prefer to be out of a stock 100% before
a company reports earnings in case the company misses earnings or guides lower in which
case the stock could plunge. Others reduce positions substantially before earnings are
released to lower risk as a massive gap lower could be very destructive to your portfolio.
The choice is up to you. You can see an earnings calendar on this web site by clicking on the
icon Useful Stock Recourses. Please verify this information by calling the company or
visiting the company's website which you should be able to find in any search engine.
*The market moves in waves that can last anywhere from weeks to months. Then
a correction or setback starts, which can last anywhere from 5 to 8 weeks or
even as long at 4 to 6 months. If you are starting a free trial and are a novice
you may be lucky to join just as the market gets underway, in which case you
will see the full power of charting. If however you start after the move has
been going for sometime then things won't look as good as traders are paring
down positions. Or even worse the market could be selling down hard and working
off the prior up move in which case you will be completely discouraged. The
power of charts is through waiting for the correction to end whereby the chart
patterns will then be fully developed. After weeks of base or pattern building,
stocks will begin to lift off and that's when the big rewards come in. The
question is, are you willing to wait and be here for the start of the next
big move? The biggest mistake a novice can make is to come back after a move
has started.
*Please read a few times my interviews in Stocks and Commodities and Traders'
Magazine at the top of the home page of this web site. There are many tips
and how - to's that will greatly improve your ability to understand how this
works.
More good comments can be found in the FAQ section of this web site in the
member login area.
I give setups of stocks that are ready to potentially move. That's my
job. Your job is to get to know the stock and its movement along with the
general market each day. You are the only one that can do this in realtime
during market hours. Then if a stock acts well (i.e. volume is very
heavy and the stock is moving easily out of the base) then that is the
one to buy. I do not buy most stocks that breakout as most do not
meet my heavy volume/price action behavior during the day. Also, I buy
only the most expensive stocks as the percent loss is least if the stock pattern
fails. High priced stocks are the best quality stocks as a
general rule in playing the market. Remember to buy as close to the trendline
as possible and the volume should come in at least 10 to 20 minutes after you
buy (or even earlier) and if not by then, you know no one wants the stock
and might as well check out early.
Thanks, Dan
Back to top
|
