Friday, April 07, 2006

Trading Rules

‘white magic’ process to making money every time on the market:

1) Diversify portfolio by have no more than 20% of total spending power in one position in general

2) Strategize the company’s products and markets and determine long term buy and or short.

3) Determine if company will meet projected earnings for FY and coming next 2 Q’s

4) Determine Fair price based on PE, estimated earnings growth for next FY and coming Q’s – F P/E. and against average PE ratio of competitors or other companies in the sector (i.e software, semi-conductors etc) and look at company fundamentals – historic earnings growth (over last 2 years) and current cash, money flow and long term debt.

5) Based on number 3, determine share price growth and estimated time and that should be the exit strategy – should be based around events such as earnings announcement or product announcement or company acquisitions or management changes etc

6) Watch market sentiment and re-run 1-4 as new developments occur in the company and market.

7) If after doing 5) you find that everything still good, then make a decision to average up and or down. In case of down try to estimate the bottom and reason why stock is falling and thus try to time average down to maximize benefit of averaging down.

8) Hold a worst case trailing on stock – which should be well below the price you would average down against – should be last resort if things are looking really bad.

9) If after your timing and or event price reaches your target, re do steps 1-4 and either re-evaluate price, number stocks help or sell out completely.

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