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#Knowledge: 23 Trading Rules That Will Make You a Better Stock Trader
1. Don’t buy cheap stocks. Buy Nasdaq stocks mainly selling between $15 and $300 a share and NYSE stocks from $20 to $300 a share. Avoid the junk pile.
2. Buy growth stocks that show each of the last three years annual earnings per share of at least 25% and the next year’s consensus earnings estimate up 25% or more. Most growth stocks should also have annual cash flow of 20% or more above EPS.
3. Make sure the last two or three-quarters earnings per share are up a huge amount. Look for a minimum of 25% to 30%. In bull markets, look for EPS up 40% to 500% (The higher, the better).
4. See that each of the last three-quarter’s sales is accelerating in their percentage increases, or the last quarter’s sales are up at least 25%.
5. Buy stocks with a return on equity of 17% or more. The best companies will show a return on equity of 25% to 50%.
6. Make sure the recent quarterly after-tax profit margins are improving and near the stock’s peak after-tax margins.
7. Most stocks should be in the top five or six broad industry sectors.
8. Don’t buy a stock because of its dividend or P/E ratio. Buy it because it’s the number one company in its particular field in terms of earnings and sales growth, ROE, profit margins, and product superiority.
9. Buy stocks with a relative strength of 85 or higher.
10. Any size capitalization will do, but the majority of your stocks should trade an average daily volume of several hundred thousand shares or more.
11. Learn to read charts and recognize proper bases and exact buy points. Use daily and weekly charts to materially improve your stock selection and timing. Buy stocks are they initially breakout out of sound and proper bases with volume for the day 50% or more above normal trading volume.
12. Carefully average up, not down, and cut every single loss when it is 7% or 8% below your purchase price with absolutely no exception.
13. Write out your sell rules that show when you will sell and nail down a profit on your stock.
14. Make sure your stock has at least one or two better-performing mutual funds who have bought it in the last reporting period. You want your stocks to have increasing institutional sponsorship over the last several quarters.
15. The company should have an excellent new product or service that is selling well. It should also have a big market for its product and the opportunity for repeat sales.
16. The general market should be in an uptrend and either favors small or big cap companies.
17. The stock should have ownership by top management.
18. Look for a “new America” entrepreneurial company rather than laggard, “old America” companies.
19. Forget your pride and ego; the market doesn’t know or care what you think. No matter how smart you think you are, the market is always smarter. A high IQ and a master’s degree are not guarantees of market success. Your ego could cost you a lot of money. Don’t argue with the market, and never try to prove you’re right and the market is wrong.
20. Watch for companies that have recently announced they are buying back 5% to 10% or more of their common stock. Find out if there is new management in the company and where it came from.
21. Don’t try to buy a stock at the bottom or on the way down in price, and don’t average down (If you buy at $40, don’t buy more if it goes to $35 or $30).
22. If the new appear to be bad but the market yawns, you can feel more positive. The tape is telling you that the underlying market may be stronger than many belief. On the other hand, if highly positive news hits the market and stocks give ground slightly, the tape analyst might conclude the underpinnings of the market are weaker than previously believed.
23. 37% of a stock’s price movement is directly tied to the performance of the industry group the stock is in. Another 12% is due to strength in its overall sector. Therefore, half of a stock’s move is due to the strength of its respective group.
#Clubupdate: Experience of Member from Niftymillionaire: Why do many people fail in markets?
There are more sophisticated and better technical analysts than me, but they have not been able to translate it into trading profits. After doing this on a daily basis for many years, I think I am understanding why?
Trading by its very nature has a fundamental underlying uncertainty in it. Most people are comforted by certainty. This is because our minds since their evolution are trained to look for certainty. And when we suddenly come face to face with uncertainty, we try to find certainty and hence fail. Most people try to find certainty in trading by looking for new and complex theories and hope that they will always know what is going to happen next. Such people not only fail in doing that but they never able to take trading up to a size which changes their life because, in their hearts they know, it does not have the success rate they would like the world to believe.
The day my trading turned around is the day I accepted the uncertainty of the markets and used simple techniques and played big. I did this knowing that I did not have other than a 60 pc probability of success the trade. And hence I am vigilant to the fact that it may not work and hence I may need to cut or change my position. This has given me much greater accuracy and profitability than all the technical analysis pundits. This is because my losses are always in control and when I get into a profitable trade I am able to run it hard, applying trade management to it. So the reason most people fail, according to me is that they are all running in the wrong direction in their need for certainty and to be right.
As time goes by, I also realize that somehow my eccentric, aggressive, uncompromising and unreasonable personality has helped me in biz and trading. I have found the conservative, compromising, fearful and “normal” fail in trading markets. The less complicated approach may make you look human but it works.
#Knowledge: 3 Reasons Why Investors Fail And What We Can Do About It
when engaging in a financial activity.” The results are stunning, but in some ways, not at all surprising. Investors get duped with frightening frequency. The 2012 Dalbar study shows over a 10 year period, the Average Asset Allocation Investor had returns of 2.38% while the S&P 500 tallied a return of 7.1%; meaning it’s about behavior and beliefs, not the markets.
1. Investors fail because they too often believe what they hear or read. Unsubstantiated claims of “guarantees” that are too good to be true lure investors to plunk down their hard earned coin for promises of superior results-even when framed as lower risk or guarantees. But let’s face it, everyone wants to be in on something really awesome and own the bragging rights to their own superiority. It’s one of the reasons Madoff was so
successful-a win every time.
Investors, avidly glued to the financial press, will follow the words of a reporter or market ‘guru’, in order to avoid “missing” an opportunity. This was well documented during the run-up of gold prices, where investors bought up the price, regardless of the fact that it was completely irrational. It happened during the tech boom-in fact, it happens all the time.
2. Investors fail because they believe in their ability to time the market or pick the right stocks. It turns out, as Nobel Prize-winning Professor Daniel Kahneman in his book, “Thinking Fast and Slow” discusses in painstaking research that we are hard-wired to our beliefs. When we stop to analyze our beliefs against reality, we are up against a massive wall requiring a significant mental effort to breach. Professor Meir Statman wrote, “What Investors Really Want, shows that investors seem to be inoculated with a strong dose of “unrealistic optimism and overconfidence.” Is it any wonder we make bad decisions?
3. Investors fail because we don’t possess the required knowledge and experience to make consistently good decisions. Rather than research and interview a variety of financial advisors in order to gain an objective view of their goals, resources, risk tolerance and time horizon, investors might likelier respond to a cold-calling broker who will offer them a shortcut to financial rewards.
So what can we do with the deck seemingly stacked against our financial success?
1. A healthy dose of skepticism is desirable when fielding offers or reading articles in the financial press. It’s pretty safe to rely on the old axiom,” if it sounds too good to be true, it usually is.” The idea of higher returns without higher risk is simply silly. It takes self-control and discipline to avoid falling for fantastical claims and a willingness to look behind the claims and headlines.
2. Yes, our brain and hardwiring is a very powerful and complex machine. That being said, it makes it that much more important to take a step back from decisions that are more than likely not in our best interest. Gain a better understanding of the reasons why we make the decisions we do and install safeguards to protect you. Those safeguards could include your spouse or partner, or members of your financial team (such as a financial planner, CPA, or family attorney). Talk to a variety of stakeholders and experts-solicit opinions and other points of view. Following the crowd is not a strategy-unless you are a professional cliff diver.
3. In order to avoid making bad decisions, do the research necessary to find a fee-only advisor who will take the time to ask you the important questions about your life, your goals, your concerns and your financial resources and construct an appropriate financial roadmap to achieve rational goals.
Don’t rely on line the media, brokers who wish to sell you something, or your own unrealistic optimism for success-it takes time, discipline and steadfast conviction to avoid the many pitfalls and achieve desired outcomes.
#TechnicalCharts: World Market at Crucial Support Levels
From the above chart, it is clear that we should not make new low otherwise selling will be huge….like for DOWJONES ==>23500, SPX -2600, TSX = 15K, NIFTY – 10K, NASDAQ – 6800, Hong Kong 29500, Vix above 25…Gold above 1360 .. these are the levels should not break otherwise Midcap can see another 10 % fall…
#TechnicalCharts: Tata Motors
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