IBD--Investor's Corner: "Learn The Lessons Of Past Trading Mistakes"
investors.com
>>>Monday, September 11, 2000
Learn The Lessons Of Past Trading Mistakes
By Christina Wise
Investor's Business Daily
All investors make mistakes, but not all learn from them.
A review of your past trades is critical to improving your stock market prowess. It helps you spot your weaknesses. And once you've identified a problem, you've done half the work of solving it.
You might try keeping a spreadsheet listing the stocks you've purchased, along with the dates and prices at which you bought and sold. Other columns might contain the stock's Relative Price Strength, Earnings Per Share, Accumulation/Distribution and other ratings at the time of purchase and sale.
Allow sufficient time to pass for you to be objective about your dealings. Then analyze your winners and your losers.
Start with the fundamentals. Were the stock's Relative Price Strength and Earnings Per Share Ratings 80 or higher? If not, you probably should have steered clear.
Its Accumulation/Distribution Rating should have been "A" or "B." That showed you whether institutional buyers - the ones that move markets - were buying or unloading your stock when you jumped on board.
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Image: RF Micro Devices
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Also look at its quarterly earnings. Were they up a substantial amount and, better yet, accelerating? Was the stock's annual growth rate higher than 20% for the past three years? Was it a leading stock in a leading industry group? Winners run in packs. You're better off sticking with an industry group in the top quartile of the 197 groups that IBD tracks.
Consider the timing of your purchase. Plot where you bought and sold the stock on a chart. It's best to buy a stock as it emerges from a base that's at least seven weeks long.
Did you buy when the stock was still too deep in its base? Or was it extended far above its last consolidation and ripe for a correction? How high was the trading volume?
Also, what was the market doing when you jumped in? Three of four stocks will follow the market's general direction.
Knowing when to sell is just as important. Unload any stock that drops more than 7% below your purchase price. If your stock has racked up big gains, know when to take your money and run. Don't let a gain of 20% or more turn into a loss.
Consider RF Micro Devices. If you bought into the integrated circuit maker on its Nov. 5 breakout, which came on above-average volume, you timed your purchase correctly.
And if you rode along as it rose nearly 237% over the next four months, you were sitting on a pretty healthy gain.
But there were hints that the ride was about to end. Six days into a climax run, the stock logged its biggest point gain ever on March 3. But volume limped in well below average as the stock hit a new high. It turned out to be its highest close.
Today RF Micro trades about 57% below its March peak.<<< |
