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The following is a Commentary found on the
Net. The author is unknown at this time however its points are very helpful. It illustrates
basic strategy for designing your trading style.
On the fundamental side:
- it is not too hard to make any stock sound good. If they
have some kind of opportunity, a good promoter or publicist can probably convince an investor that the
stock deserves consideration. Listen to the story, but don't put too much trust in it.
- consider the people behind the deal. Bringing buying into
a stock that has a good story is as much about who you know as what you have. Do the people have a good
track record of successful stocks.
- pay a lot of attention to share structure. Stocks that
have the majority of their shares in relatively few hands are easier to promote as selling can be better
controlled. Companies that have large amounts of free trading stock in the possession of insiders have
the currency to do deals and pay promoters.
- do they have cash? This is a double edged sword as the
really legitimate companies with lots of cash probably won't worry about promoting their stocks higher.
However, a promoted stock with cash has the ability to generate excitement as they acquire deals and buy
publicity.
- does management have incentives? Investors often complain
about the way companies distribute cheap options to their management. However, the more they stand to
gain, the better the chance the stock will go higher.
- what is the potential for a dramatic change in
fundamentals? Fundamental analysts often put too much emphasis on what is already publicly known. What
matters is what will be fundamental in the future. If a company is facing a major event which can
dramatically change their value, it should be considered.
On the technical side:
- is the stock liquid? Stocks that trade a lot have a lot of
investors and brokers watching them. If the company can generate good news (or rumors), stocks that are
liquid have a better chance of moving. Plus, it is easier to buy and sell a liquid stock.
- Is the stock in a downward trend? If so, forget about as
the timing is not right. Stocks in downtrends are doing so because the market's psychology has turned
negative. That takes time to turn around.
- Is the stock breaking out to new highs for the first time
in three months? This is very positive, since investors have found new information to justify a valuation
on the stock that has not been seen for some time. Often, these breaks come some time before the news is
released.
- Is a beaten up stock breaking from a rising bottom? Stocks
that have been in a downtrend take some time to reverse the pessimism. A stock that can form a bottom
higher than the previous one, and then make a break from that bottom may be reversing the trend.
- Has there been a period of accumulation? Those close to a
deal often accumulate as much stock from the market quietly before they push the stock higher. If a stock
has been trending sideways for a long while with a few brokerage houses accumulating large positions,
something could be in the works.
- Does the stock have a strong close? If so, market makers
are probably working on the stock which can be positive for the market's perception.
Author Unknown
The following links take you to a wealth of
on-line educational material about on-line trading.
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