Tony's Trading Guidelines
Below are some of the rules I generally follow in my trading approach. It is a thumbnail view of how I trade and the guidelines I use.
- I generally like to trade stocks that are trading between $5 and $40 - Better leverage on my money. Nonetheless, the primary guideline is to trade stocks that have a high trader interest.
- I rarely make decisions based on fundamentals as I believe fundamental information can be manipulated and/or lacking - Charts give a better picture of where the "real strength" of the stock lies.
- I normally stay away from stocks that average less than 300,000 shares per day - Day and short term traders normally are not active in those stocks.
- I do not get involved in a trade unless it has at least a 4-1 risk/reward ratio, based on real support/resistance levels and not on money. This allows me to be wrong as much as 70-80% of the time and still make a profit.
- I would rather miss a trade than get involved in a stock at a price that cannot be defended - Main goal in my trading is to keep the principal safe.
- I let the chart tell me when to get out of a trade (not fear, greed or rumors). I do not cut my profits short just because I want to lock in a profit - Cutting your profits short skews the balance of profits versus losses.
- I generally use "mental" stops - Traders often target stop loss areas and when hit turn the stock around. Nonetheless when my stop is hit, if the stock does not reverse itself within a short period of time, or continues to go down immediately thereafter, I get out of the trade.
- I believe a support or resistance level is not broken unless it trades at least 10 ticks or more above or below the level. This is a "general" rule and by no means set in stone. It works very often though.
- I believe strong levels of support or resistance normally require a second confirmation close in order to give a valid reading.
- I rarely stay in for a major earnings report unless there are extenuating reasons for doing so. I will make the decision though, based on the inherent volatility of the stock, the overbought/oversold condition of the stock, and the general outlook for the industry it trades in.
- I know that weekly charts are the best for detemining trends and important levels of support/resistance but daily charts are important for determining entry and exit points. Moving averages (20, 50, and 100 and both daily and weekly) are quite useful in trending markets but not so useful in sideways trending markets.
- I do not let Fear and Greed be part of my trading strategy. Nonetheless, the Fear and Greed of other investors should be factored in, when evidently present, as additional reasons for further movement in a stock.
- I never put all my "eggs" in one basket. No more than 25% of the portfolio should be in any one stock. A strategy of trading 8-10 stocks with an average of about 10% in each is the best portfolio.
- I believe a consistent trading strategy goes a lot farther than hitting a home run but striking out often. Making a portfolio grow consistently allows you to trade with confidence.
- I listen to what the charts are telling me as they reflect what the big traders in the stock are doing.
- I don't ever step up in front of a "runaway freight train" even if convinced that the stock is overdone in that direction. Momentum can carry stocks way past levels that make sense.