Secrets for Profiting in Bull or Bear Markets

by Stan Weinstein

• Never buy or sell a stock without checking the chart.
  
• Never buy a stock when good news comes out, especially if the chart shows a significant advance prior to the news release.
  
• Never buy a stock because it appears cheap after getting smashed. When it sells off further, you’ll find out that cheap can become far cheaper.
  
• Never buy a stock in a downtrend on the chart.
  
• Never hold a stock that is in a downtrend no matter how low the price/earnings ratio. Many weeks later and several points lower, you’ll find out why the stock was going down.
  
• Always be consistent. If you find that you’re sometimes buying, sometimes selling in practically identical situations, then there is something terribly wrong with your discipline.

GUIDE ON BUYING

• Check the major trend of the overall market.
  
• Uncover the few groups that look best technically.
  
• Make a list of those stocks in the favourable groups that have bullish patterns but are now in trading ranges. Write down the price that each would need to break out.
  
• Narrow down the list. Discard those that have overhead resistance nearby.
  
• Narrow the list further by checking relative strength.
  
• Put in your buy-stop orders for half of your position for those few stocks that meet our buying criteria. Use buy-stop orders on a good-‘til-cancelled basis.
  
• If volume is favourable on the breakout and contracts on the decline, buy your other half position on a pullback toward the initial breakout.

DON’T COMMANDMENTS

• Don’t buy when the overall market trend is bearish.
  
• Don’t buy a stock in a negative group.
  
• Don’t buy a stock below its 30-week MA.
  
• Don’t buy a stock that has a declining 30-week MA (even if the stock is above the MA).
  
• No matter how bullish a stock is, don’t buy it too late in an advance, when it is far above the ideal entry point.
  
• Don’t buy stock that has poor volume characteristics on the breakout. If you bought it because you had a buy-stop order in, sell it quickly.
  
• Don’t buy a stock showing poor relative strength.
  
• Don’t buy a stock that has heavy nearby overhead resistance.
  
• Don’t guess a bottom. What looks like a bargain can turn out to be very expensive disaster. Instead, buy on breakouts above resistance.

DON’TS FOR SELLING

• Don’t base your selling decision on tax considerations.
  
• Don’t base your selling decision on how much the stock is yielding.
  
• Don’t hold onto a stock because the price/earnings (P/E) ratio is low.
  
• Don’t sell a stock simply because the P/E is too high.
  
• Don’t average down in a negative situation.
  
• Don’t refuse to sell because the overall market trend is bullish.
  
• Don’t wait for the next rally to sell.
  
• Don’t hold onto a stock simply because it is of high quality.