Follow Up to "Questions from a Newb"

J

jfallon

The other thread was getting long winded and also totally derailed. Hopefully this can stay on topic. :)

I discussed his stock picking skills some more with him. Here is what I have gleaned from my buddy. I only post this here because I want it to be technically picked apart. And, for that, I need your help.

Here are his rules for picking stocks...

1. It is easier for a stock that is worth $1 to raise to $2 than it is for a stock worth $30 to go to $60. However, either case your money is doubled. Therefore, he said go for cheap stocks.

2. Over a period of time stocks have a normal/avg/typical/historical price that they are traded for (not sure what this means). Research the company and then pick the stock that is trading below its typical/normal/avg/historical value. I need more info on how he chooses his entry point.

3. Put a stop on your stocks. If a stock is worth $10 then put a stop on it for $9. As the stock moves up, then move the stop up.

From what I have read, I believe that you guys are pros, I can't believe that this could be that simple. Please help me by critiquing this as much as possible.
 
Quote from jfallon:

The other thread was getting long winded and also totally derailed. Hopefully this can stay on topic. :)

I discussed his stock picking skills some more with him. Here is what I have gleaned from my buddy. I only post this here because I want it to be technically picked apart. And, for that, I need your help.

Here are his rules for picking stocks...

1. It is easier for a stock that is worth $1 to raise to $2 than it is for a stock worth $30 to go to $60. However, either case your money is doubled. Therefore, he said go for cheap stocks.

2. Over a period of time stocks have a normal/avg/typical/historical price that they are traded for (not sure what this means). Research the company and then pick the stock that is trading below its typical/normal/avg/historical value. I need more info on how he chooses his entry point.

3. Put a stop on your stocks. If a stock is worth $10 then put a stop on it for $9. As the stock moves up, then move the stop up.

From what I have read, I believe that you guys are pros, I can't believe that this could be that simple. Please help me by critiquing this as much as possible.
More...

jfallon,

I think your making this difficult.

If you or your friend truly feel its that simple...

ask him to tell you his next trades...

no after the fact trades...

post those stock picks here at EliteTrader.com so that you yourself can determine if it truly is that easy.

By the way...I hope that's not your firends stock picking strategy.

That's like saying....

"It's simple to run a marathon. All you have to do is buy some jogging pants, good running shoes and see you at the finish line."

There's a lot more to it than just that.

Also, there's nothing to technically pick apart because you haven't talked about anything technical (like chart patterns) nor fundamental (like company evaluations).

You did use the word research...

did your friend go into any details or give you examples of what he meant by research???

Keep at it...asking your buddy more questions...

demand from him to be specific...demand he pick some stocks and you monitor how those stock picks are doing...

demand that he gives you stop/loss protection and profit targets for each of his stock pick recommendations...

demand that he sits down and show you what type of research he does...

Therefore, hopefully your friend will tell you more than just those ambiguous, philosophical generalities he has been telling you so far.

NihabaAshi
 
jfallon,
Don't forget to ask your friend about his losing trades as well. Ask him if he could give you a ratio of losing trades/ winning trades, and $losing/$profit (for a week, a month, or whatever his trading time frame is).

Most good trader do not boast about their profits. They've been humbled by the market. (that does not imply that your friend is not a good trader).

Cheers!! :)
 

Here are his rules for picking stocks...

1. It is easier for a stock that is worth $1 to raise to $2 than it is for a stock worth $30 to go to $60. However, either case your money is doubled. Therefore, he said go for cheap stocks.

REPLY - Bad idea to ever limit your universe of stocks based on price alone. It is not necessary, and over time you will find that there is larger risk in 1 and 2 dollar stocks.

2. Over a period of time stocks have a normal/avg/typical/historical price that they are traded for (not sure what this means). Research the company and then pick the stock that is trading below its typical/normal/avg/historical value. I need more info on how he chooses his entry point.

REPLY - Excellent strategy. Your friend is buying weakness - current price in relation to recent levels. But this is a game best played with good, solid companies with strong earnings.

3. Put a stop on your stocks. If a stock is worth $10 then put a stop on it for $9. As the stock moves up, then move the stop up.

REPLY - Excellent idea. Always need a system to pull out in case your trades goes sour.

An important question to ask your friend is how long he has been trading this strategy of buying pullbacks. Why? Because with the very strong market since last October, nearly any system of buying pullbacks would have shown strong gains. This bull run will likely end soon, and simply buying any pullback on any stock will no longer be an easy profit.
 
The other advantage of buying broken $1 companies is your downside is only $1!
I personally do not trade the Pink sheets.
 
Quote from jfallon:

The other thread was getting long winded and also totally derailed. Hopefully this can stay on topic. :)

I discussed his stock picking skills some more with him. Here is what I have gleaned from my buddy. I only post this here because I want it to be technically picked apart. And, for that, I need your help.

Here are his rules for picking stocks...

1. It is easier for a stock that is worth $1 to raise to $2 than it is for a stock worth $30 to go to $60. However, either case your money is doubled. Therefore, he said go for cheap stocks.

2. Over a period of time stocks have a normal/avg/typical/historical price that they are traded for (not sure what this means). Research the company and then pick the stock that is trading below its typical/normal/avg/historical value. I need more info on how he chooses his entry point.

3. Put a stop on your stocks. If a stock is worth $10 then put a stop on it for $9. As the stock moves up, then move the stop up.

From what I have read, I believe that you guys are pros, I can't believe that this could be that simple. Please help me by critiquing this as much as possible.
More...

It really isn't that simple. I'm not at all doubting your friend, because I have a friend also who doubled his money on SIRI (check it out) in less than a month. That friend, also has someone who pulled in about 1000% return on a different penny stock in about 6 months.

I am personally very interested in penny stocks, that's why I would like to see your friend's upcoming picks and reasons why. If he is for real, he should be able to show his strategy in action for you. Maybe you'll even make some money too.

Problem with penny stocks is that there is a reason their price has been destroyed so much. Most of them are only months away from liquidation. A $1 stock may easily go to $2 but it can dissapear much easier. A $30 stock may have some serious resistance going to $60 but the chances of it dissapearing are very low.
 
Quote from Ebo:

The other advantage of buying broken $1 companies is your downside is only $1!
I personally do not trade the Pink sheets.
More...

Downside is still 100% however. It really depends on your position sizing.
 
Quote from jfallon:

The other thread was getting long winded and also totally derailed. Hopefully this can stay on topic. :)
More...

Definitely seems to me that you're looking for an easy formula to do it .... :confused:

This my post from your initial thread:

Dear Jfallon,

Financial Markets basics are common sense. Stocks and other financial instruments change hands one time after another .You buy stock and you sell it later for a profit. ( or a loss)

If you buy low you'll sell high and you'll pocket the profit. If you buy high you'll sell higher and you'll pocket the profits again. Easy.. right ?? No rocket science so far..

However , the deal is to find out when such a stock will go up/ down and then take action. That's not an easy task . That's a very hard job that can take you as long as a life time to figure it out and some people lose everything ( and i mean it ) and they never achieve it.

Take your time. Do some research ,study some books and you can come back later with more specific questions
 
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