The single most valuable piece of information anyone can give you when it comes to the markets is to master control of your emotions. Gaining control does not mean you do not feel the emotion; it simply means that you recognise the emotions of fear and euphoria are useless energy-draining emotions that have no place in the investment arena. You need to work on this, for success won’t come overnight.
As they say, practice makes perfect so practise; every time you are angry and about to make a rash decision, regardless of whether it concerns the stock markets or not, try to put off making a decision until you have calmed down. This is the first step in gaining control of your emotions. When your emotions do the talking, your money does the walking, and it usually walks away from you into somebody else’s pocket. Master, this phrase, buy when there is blood in the streets and run for your life when the lemmings are celebrating.
Gaining control of your emotions is just part of the preparation. You need to put aside time to understand the markets. In other words, you have to master the rules of the game you are playing.
You need to know the difference between a stock, ETF, Index funds, Mutual funds, dividend stocks, High-tech Stocks, Biotech stocks, options, etc. Understand that the market is made up of many sectors and that not all the sectors will trade in tandem with the market.
Identify the sectors you like and study them so that you get a feel for how they move. Once you have found sectors that you like, start looking for the leaders and newly emerging leaders. How do you do this? You can select multiple criteria, however for this example; we will look at two high quarterly earnings or revenue growth rates. The second criterion, the company should have an exciting product that is not easy to duplicate. It is easier to find companies meeting the first criterion. Two examples of good strong stocks are ABMD and NVDA. A new player worth looking at is AMD
Regarding quarterly earnings growth rates or revenue growth rates, use simple yardstick as your guidepost.
15%-20% = Good
25%-40% = Very good
50% plus = Excellent
Now look for a good stock screener. Finviz is a site that provides a fairly robust stock screener, and it has both Fundamental and technical analysis screening tools built-in.
There are many screens you can choose, but the one we highlighted is the one that allows you to select the EPS growth quarter over quarter, which matches the criterion we listed above. You can add multiple filters if you want to further narrow your search down.
Patience and Discipline
Now that you have your list of stocks, you need patience and discipline. You wait for strong pullbacks in the corresponding stocks before deploying new capital into them. Regardless of what the expert’s states, sectors always experience a strong correction; you just need to be patient. Once the sector corrects, you need to remember the adage we mentioned before “panic when the crowd is happy and jump for joy when the masses are panicking. The other option is that you wait for the entire market to pull back strongly. If you look at any long-term chart, you will see that the markets experience at least 1-2 small to medium corrections a year; the stronger the correction, the better the buying opportunity.
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Portfolio management and stops
It is essential that you employ stops, just in case the trade does not work. A stop helps to prevent you from being blown out of the water and gives you the chance to redeploy your capital into another strong company. Please read this section thoroughly Key rules to follow if you want to have a healthy portfolio
While not essential, it can significantly help you in timing your entry points. Forget about trying to time the exact top or bottom that is an exercise for fools.
Key factors to remember
After composing a list of top-notch stocks, you need to wait for strong market pullbacks to open new positions. If you look at any long-term chart, you will see that no matter how strong the pullback the market always rebounded and soared higher. Don’t jump in as soon as the markets start to pull back, wait for the panic levels to hit the stratosphere and then start opening positions in the stocks you selected. The chart below clearly illustrates that all strong pullbacks should be embraced. [/color-box]
Additional Strategies to consider
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