Comprehensive coverage of the four major trading styles Evolution of a Trader explores the four trading styles that people use when learning to trade or invest in the stock market. Often, beginners enter the stock market by: * Buying and holding onto a stock (value investing). That works well until the trend ends or a bear market begins. Then they try * Position trading. This is the same as buy-and-hold, except the technique sells positions before a significant trend change occurs. * Swing trading follows when traders increase their frequency of trading, trying to catch the short-term up and down swings. Finally, people try * Day trading by completing their trades in a single day. This series provides comprehensive coverage of the four trading styles by offering numerous tips, sharing discoveries, and discussing specific trading setups to help you become a successful trader or investor as you journey through each style. Trading Basics takes an in-depth look at money management, stops, support and resistance, and offers dozens of tips every trader should know.
Fundamental Analysis and Position Trading discusses when to sell a buy-and-hold position, uncovers which fundamentals work best, and uses them to find stocks that become 10-baggers stocks that climb by 10 times their original value. Swing and Day Trading reveals methods to time the market swings, including specific trading setups, but it covers the basics as well, such as setting up a home trading office and how much money you can make day trading.
THOMAS N. BULKOWSKI is a successful investor with thirty years of experience in the stock market. He is also the author of the Wiley titles, Encyclopedia of Candlestick Charts, Encyclopedia of Chart Patterns, Getting Started in Chart Patterns, Trading Classic Chart Patterns, and Visual Guide to Chart Patterns. Bulkowski is also a contributor to Active Trader, Technical Analysis of Stocks & Commodities, and other publications worldwide. Before earning enough from his investments to retire from his day job at age 36, Bulkowski was a hardware design engineer with Raytheon and a senior software engineer for Tandy Corporation.
Preface xi Acknowledgments xvii Chapter 1 introduction to Buy and hold 1 What Is Buy and Hold? 2 Who Should Buy and Hold? 2 My Numbers: Background and Terms 3 Now What? 3 Chapter 2 Stock Selection 5 What Comes After Large Price Moves? 6 Myth: Stocks That Drop Least in a Bear Market Then Soar 7 Stock Selection the Easy Way 8 Two Tips for Stock Selection 9 Buy Fallen Angels 10 What Chart Patterns Appear Before Mergers and Buyouts? 10 What Are Insiders Doing? 13 Chapter 3 Book Value 17 Book Value Defined 18 Value Assets Properly 18 Investing Using Book Value 19 When Is Book Value Important? 19 The Value of Hidden Assets 20 Limits of Book Value 21 Buybacks Lower Book Value 22 Historical Research 22 Price to Book Value: A Good Measure 24 Small Caps: Best Choice 25 Low Stock Price Rules! 27 Book Value and Return on Equity 28 What Is the Best Price to Book Value? 29 Combinations and Performance 30 Trading Strategy: Beating the Dow 31 The Eight-Stock Setup 32 Hold Time for Best Results 34 Chapter 4 Capital Spending 37 Is Decreasing Capital Spending the Holy Grail? 37 Capital Spending Trends versus Performance 38 Frequency Distribution 39 Performance by Market Cap 40 Chapter 5 Cash Flow 43 Historical Research Review 44 Cooking the Books 45 The Numbers 46 Is Increasing Cash Flow Good? 46 Performance by Market Cap 48 Chapter 6 Dividends 51 Stock Dividends: An Explanation 52 Historical Research Review 52 High Yield, High Performance? 53 Testing: Yield and Payout Ratio 54 Which Is Best: Dividends or No Dividends? 55 Surprise: Dividend Cuts Work! 55 When Disaster Strikes 57 Performance by Market Cap 58 Chapter 7 Long-Term Debt 61 The Numbers 61 Is Debt Good? 62 Sinking Ship: Taking on Debt 62 Debt by Market Capitalization 63 Chapter 8 Price-to-Earnings Ratio 67 History Lesson 67 Do Low P/E Stocks Outperform? 68 P/E Trends Down: Good or Bad? 69 Price and Earnings Combinations: Yawn 69 Buy Small Caps with Low P/E 70 High P/E: Time to Sell? 71 Three P/E Tips 71 Chapter 9 Price-to-Sales Ratio 73 Good Benchmark: PSRs Below 1.0 74 PSR Trend: Down Is Best 75 Small Caps, Small PSRs Rule! 75 Checklist: PSRs by Industry 77 Chapter 10 Return on Shareholders Equity 81 Low ROE Stocks Outperform: Why? 82 ROE Trend Over Time: Yawn 83 ROE Performance by Market Capitalization 83 Chapter 11 Shares Outstanding 85 Performance versus Shares Outstanding 85 Event Pattern: Dutch Auction Tender Offers 87 Should You Sell? 87 Sell at What Price? 90 Event Pattern: Common Stock Offerings 91 Performance and Market Capitalization 93 Chapter 12 Fundamental Analysis Summary 95 Performance Rank: One-Year Hold 95 Performance Rank: Three-Year Hold 97 Performance Rank: Five-Year Hold 99 Chapter 13 How to Double Your Money 101 How Long to Double? 101 What Is the Best Buy Price? 102 Which Market Caps Do Best? 103 Focus on Fundamentals: Which Are Best? 104 Warning: Losses Ahead. What You Need to Know 110 Testing the Setup 112 Chapter 14 Finding 10-Baggers 115 How Long to 10x? 116 What Is Highest Starting Price? 116 What Happens the First Year? 117 Rising Over Time: How Fast? 118 10 Baggers by Market Cap 119 Fundamental Ratios Common to 10 Baggers 119 Industries Most Likely to Make 10 Baggers 127 The Most Popular Years for 10 Baggers 128 Surprising Finding about 10 Bagger Losses 129 Backward Testing 129 Chapter 15 Trading 10-Baggers 133 10 Bagger Birth 133 Life of a 10 Bagger 139 10 Bagger Death 150 Chart Patterns in 10 Baggers 152 Chapter 16 Selling Buy and Hold-161 The Weinstein Setup 161 Example: The Southwest Airlines Trade 165 Example: Savient Pharmaceuticals 167 1 2 3 Trend Change for Downtrends 168 1 2 3 Trend Change for Uptrends 170 The Cloudbank Setup 172 Using Trailing Stops to Sell 178 Timely Trend Line Exits 180 Can Moving Averages Help? 181 Follow Insider Transactions 183 Selling: Two Ratio Tips 184 Selling Down from a High 185 Chapter 17 Fundamentals: What I Use 189 Two Book Value Tips 190 Do Not Get Singed by Burn Rate 190 Drop Capital Spending! 191 Current Ratio 2.0 191 Prospecting for Growth Using Dividends 191 Rising Earnings, Net Profit 192 P/E Ratio versus Industry 192 Litigation: Stop Pissing People Off! 193 Avoid Too Much Long Term Debt 193 Market Capitalization: Big Returns by Going Small 194 Research Spending 194 Sales? Think Money 195 Price to Sales Ratio: What About Debt? 195 Stock Price: 5 to 20 195 Volume: Thin Ice Ahead! 196 Chapter 18 Introduction to Position Trading 199 What Is Position Trading? 199 Who Should Position Trade and Why? 200 What Position Trading Will Not Do 202 Example Position Trade 202 Chapter 19 Getting Started in Position Trading 207 Check the News or Lose! 208 Trend? What Trend? 209 Trade with the Primary Trend 211 Take Your Pick: Bottom Fishing or Momentum? 212 What Is Market Influence on Stocks? 213 What Chart Patterns Are Best for Position Trades? 214 Busted Chart Patterns Revisited 216 Trading Example: Finding Value in Disaster 218 Chapter 20 Ten Factors Make Chart Patterns Work 223 What Is a Double Bottom? 224 Ten Factors Revealed 226 Scoring System Checklist 232 Scoring Performance 232 Higher Scores Work Best 234 Case Study: Stillwater Mining 235 Case Study: LSB Industries 237 Case Study: Lumber Liquidators 238 Chapter 21 Three Winning Trades and a Funeral 243 The Intel Fiasco 244 Hudson Highland Hiccup 245 CNO Financial Group 248 Complete Production Services 250 Chapter 22 What Not to Do: Three Botched Trades 255 Medivation: Selling Too Late 255 Coldwater Creek: Selling Too Soon 258 Hovnanian: Selling at the Bottom 260 Chapter 23 What We Learned 265 Visual Appendix of Chart Patterns 283 Bibliography 289 About the Author 293 Index 295