Frequently asked questions

Re: Tips & Protocols for Newbies!

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Re: Tips & Protocols for Newbies!

i look at many things - one of most important is financials in my mind. revenue drives earnings - earnings drive profit. profit drives share price. these are the fundamentals i look for first

Re: Tips & Protocols for Newbies!

Cup with Handle:

This is one of the most common trading patterns that begins after a stock makes at least a prior up trend of 30%. That's the first thing to look for on a chart. Your first sign that this stock has shown at least some power in 30% or more growth in its price.

The next typical trading activity is to see the stock's price pull back, where in effect it is taking a break. This is where you'll see a base forming on the chart, or what we call a consolidation pattern. That holding pattern is key, since it's the area that weeds out the less committed stockholders and provides a launch pad for the stock to perhaps move up in price. Any stock requires support of strong buyers to make major price moves.

You will find that the entire base pattern should last at least 7 weeks and can be as long as a year and a half. The stock will usually not correct more than 30%, but many historical patterns have corrected as much as 50% in a severe bear market. Much of chart reading is common sense. In strong markets, you'll see stronger patterns, given three-fourths of all stocks follow the general market trend.

So, once you've identified this basing pattern, then you'll want to go through each week and look at the action. Again, you'll understand and see more clearly by linking to the above-mentioned areas for the specific signs of this Cup with Handle pattern.

To help remember the elements of a base, it may help you to make a checklist that you can use to search for stocks showing this emerging strength in their patterns:

Is there a prior up trend of at least 30%?
What type of base is it?
Is the base long enough?
Are there signs of strength and support in the base?
Where is your precise buy point?
Is there a breakout on heavy volume?

Re: Tips & Protocols for Newbies!

cont'd

Daily vs. Weekly Charts:
I would also add that it's a good idea to consult both daily and weekly charts since both offer important perspectives in trading patterns. You'll see the more immediate action in dailies, and they are critical if you want to buy stocks at their exact pivot, or buy point - and you will also be able to spot signs of a stock topping and turning down.

You will also see the more long-term formations by viewing weekly price and volume patterns, and it's a good idea to get in the habit of consulting both.

Buy Stocks Making New Price Highs:
One of the key concepts we cover about proper buy points is buying stocks making new price highs. Yet, we know that searching out stocks making new highs sounds disconcerting to many investors - and is a tough concept to accept. After all, aren't we taught that we should always try and buy cheap and hunt for bargains? Yet, historical studies continue to show us it's a major trap. The facts show us the reality is that stocks making new price highs tend to go higher; whereas stocks making new lows tend to go lower. If you don't believe this, just ask yourself, how does a stock get all the way to $100 from $50? It goes through $51 and 52 and 53 and so on, each time making a new high in price. But everyone would agree that $50 is quite a bargain when the stock ends up going up to $100, right? It turns out that what most people think of as high is really low! That's the way the market works, to make fools of the majority.

There are few other chart patterns that are equally valuable to learn to recognize:

The double bottom, that actually forms the shape of a "W." What's happening is that in this case, the stock makes a bottom, rallies up and then makes another bottom that undercuts the first. The key to success for this pattern is the shakeout of the weaker holders that occurs at the second bottom. The precise buy point of this pattern is established at the middle of the "W" and it should be below the old high made at the beginning of the pattern or it is more prone to failure.
And another great base to search out is the flat base. This is often a second stage base off of a previous cup with handle or other initial base.
The Ascending Base is the last pattern, which we don't see as often.

These chart patterns will help guide you towards the stocks with the best potential. Chart reading is not conjecture, but about searching out the same time-tested patterns of prior successful trading behavior, as we mentioned earlier. If you can train your eye to spot these critical patterns and key junctures - where stocks have built strength and are poised to further prove themselves - then you've conquered half of the investing challenge by timing your buys. This is a 'skill thing' like practicing tennis or golf, but absolutely necessary to your success. You would not fly an airplane without an instrument panel, nor should you fly in your investing without consulting charts.

I want to end by saying that buying is only half of the equation. When I was just starting out, I used pretty much the same buy rules that I just shared with you and I saw my stocks produce great returns. The only problem was sometimes I found myself not participating in those moves because I sometimes took a quick 4-point gain when I could have had a 90-point gain or more. Or, I waited too long and watched in disbelief as some of my big winners went back down and I finally ended up selling them right back where I bought them. I got so frustrated that I started working on building up my sell rules and I'll share those with you in the next few Web casts on using charts to time your selling decisions. In the meantime, study those chart patterns and you'll begin to see improvement in your timing. Good luck!

This article has been brought to you by William J. O'Neil, Chairman and Founder of Investor's Business Daily, courtesy of Ameritrade.

Re: Tips & Protocols for Newbies!

Hi,

I'm waiting to step into a position on AESP, a tip from Wiseman (Thanks buddy!). *I like the fundamentals of this co, but the charts are saying it's not the right time to step in yet, according to my reading!! *I'm using slow stochastics 15/5 and MACD 17/8/9. *I read elsewhere that these are good indicators for a buy point. *I'd really appreciate if someone would take a look at the chart and give some advice or offer their own impressions about when to step into AESP. *I've done my own DD and I will take any observations as IYHO. *This will help me to validate (or no) my own interpretations. *Yesee I bought MSGL at 0.26 * :o *:-[ :-* , then again at 0.17 :-* :-* :-* :-* :-*(I still believe in this company though * *:-* :-* :-*) (Just kidding, I'm in MSGL for a long run, 3 to 6 months maybe payday, when some sales start appearing ;D)

The chart url is http://stockcharts.com/def/servlet/SC.web?c=aesp,uu[w,a]daclyyay[dd][pb50!b200!f][vc60][iut!Uh15,5!Ua8,17,9]&pref=G

Thanks again people.

Re: Tips & Protocols for Newbies!

Hi Ray,

I am in AESP @ 1.19 wished I had bought it lower but heck that's life.

I haven't lost money on any tip from Wiseman, although I haven't bought all the stocks he recommended , usualy because funds were tied up in others and I missed the buy. A couple of his tips I had to hold through earnings but even those bounced back for a nice profit. He picks good stocks, just buy right & wait.

This may not be much of a recommendation because I am also in MSGL @ .25 :-*

podunk

Re: Tips & Protocols for Newbies!

Thanks Pod,

I get you, (I'm not complaining about MSGL in any way. I can afford to take the time and wait out for it to come back up. I also realise that when you pull the trigger its a personal decision.) To ask the question another way, books aside, how much does technical analysis figure in the real world of penny stocks?

Thanks for your advice, mate. I'll take it on board.

Re: Tips & Protocols for Newbies!

Hi Noma,
I know this was directed at L43, but...Although I AM a newbie I would steer you toward Investors Business Daily for excellent coverage on the pulse of the market. You can go to this address and see what they offer. 2 week free subscription to see if you like it:
http://www.investors.com/
Some invaluable stuff here. Good luck!
Madmacd

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If you think health care is expensive now, wait until you see what it costs when it's free. --P.J. O'Rourke

Re: Tips & Protocols for Newbies!

good choice MADMACD excellent magazine for smallcaps

Re: Tips & Protocols for Newbies!

Market Cap
Shares Outstanding
How do you apply this to the price of the equity

Re: Tips & Protocols for Newbies!

Thanks, Chartster. Already incorporated into my trading plan!

shortsellers and mm's now ----------> :-*

three months time ----------> :'(

Good luck to you too.

Re: Tips & Protocols for Newbies!

Happy Thanksgiving
Thanks for letting be part of this form.
I would like to learn to swing play the trends.I use MACD ADX OBV SLOW STOC to help my entry/exit.
I need help understanding how Marketcap Float Volume
apply to rev, earnings so I can value the equities growth.

I hold TRPH sold some looking to re-enter @ 3.40

trifold

Re: Tips & Protocols for Newbies!

Hi again Noma, Like I said, I'm new at this, but maybe this will help:

To paraphrase yahoo glossary: "MM is an individual or firm acting as a principal in a securities transaction--principals are the market makers in securities--they trade for their own account and risk"-or-"One who maintains firm bid and offer prices in a given security by standing ready to buy or sell round lots (A trading order typically of 100 shares of a stock or some multiple of 100) at publicly quoted prices."

Yahoo glossary defines selling short as: "Selling a stock not actually owned. If an investor thinks the price of a stock is going down, the investor could borrow the stock from a broker and sell it. Eventually, the investor must buy the stock back on the open market. For instance, you borrow 1000 shares of XYZ on July 1 and sell it for $8 per share. Then, on Aug. 1, you purchase 1000 shares of XYZ at $7 per share. You've made $1000 (less commissions and other fees) by selling short."

As to short selling, selling short is, of itself, not a bad thing, but some short sellers use disreputable means to try to force the price of GOOD stocks down for their own gain. I personally would suggest you stay away from short selling until you understand the principals of stock movement. If you sell short and the price of the stock rises instead of drops, you still have to buy back the shares.

Yahoo glossary defines many trading terms and should be a big help: *http://biz.yahoo.com/f/g/aa.html

Excellent explanation of pump and dump can be found here: http://www.fraudbureau.com/investor/101/article15.html

Hopefully one of the level 2 traders will give you a clearer definition of MM's or cite examples and correct me if I have mis-stated anything here.

Good luck in your trades
Madmacd
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"Never invest your money in anything that eats or needs painting." Billy Rose

Re: Tips & Protocols for Newbies!

Here is another thought. I'm sure it would help some of the newbies here if those who have several years experience might share their formulas for determining what is a good stock. Something like:

1 Check the overall market conditions to see what's hot
2 Screen for stocks in hot industry or sector
3 Search out the latest PR's and news on companys
4 Bring up charts of potential stocks to show the trends and volumes
5 Check basic fundamentals of the company including CEO backgrounds and insider trades. (this could take up a page or two itself)
6 Look through the watch-dog sites (stocklemon, stock-patrol, etc.) to see if any are listed in a bad light
7 E-mail or call investor relations for relevant info.
8 When you find a few, get feedback from HMSCHAT!! ;D

I'm sure if everyone contributed their own thoughts we could come up with a great base list

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"Experience is that marvelous thing that enables you recognize a mistake when you make it again."
F. P. Jones

Re: Tips & Protocols for Newbies!

Got alerted to this board tonight, seems like a good one. Will share what I know.