Buying Rules

At some point the market will move into Bull Territory again and we will be looking for stocks or ETFs to trade. A new Buying Rules tab has been added to the site. Click here to see the rules or read below.

Stan Weinstein outlines the following steps for buying stocks in his book  Secrets For Profiting in Bull and Bear Markets.

Never, ever buy a stock in Stage 4 no matter how exciting the story!  Do homework and scouting on weekends.

Steps

Step 1 - Identify the sectors or groups with the best performance

Check the market indicators for overall direction.  This blog posts the direction every week.
Look at the market sectors and pick the best groups to zero in on.

Make an initial list of stocks in those sectors.
Cull out those few stocks with the most potentially profitable formation within those favorable groups in step #2 based on:

• Bullish patterns
• Within the Trading Range
• Relative Strength - should be above market 
• Volume
• Stock is in Stage 2. Never buy a stock in stage 3 or 4!
 

Discard any stocks with overhead resistance and that don't meet the criteria.
 

Step 2 - Buy setups

Use your checklist! It should contain some of the rules outlined below.
 
Before entering your buy order, make sure you know where your protective sell-stop will be set.

Put in your buy-stop orders for half of your position.

If volume is favorable on the breakout and contracts on the decline, buy the other half on a pullback toward the initial breakout.  

The Don't Buy List

• Don't buy in a bear market. 
• Don't buy a stock in a negative sector.
• Don't buy a stock below its 30 week moving average.
• Don't buy a stock with a declining 30 week moving average.
• Don't buy too late in an advance above the entry point. There will be other stocks.
• Don't buy on poor volume.
• Don't buy on poor relative strength.
• Don't buy if heavy overhead resistance.
• Don't guess a bottom.
• Don't buy a stock in stages 3 or 4.
• Don't feel you have to be invested all the time. It is okay to be in cash.      

    

The Importance of having a Checklist to Guide Buying and Selling Decisions

While in a bear market, there will be days when a market rebound appears. The news will be all over it and might even declare the end of a bear market.  That’s why it is important to look at data yourself and develop your own opinion on where the market is. The weekly indicators are used for the purpose of determining the market trend and help me keep a steady mind. Paying attention to stock news sites can be a wild ride.

I learned the hard way to develop a checklist for my trades. Following recommendations made by others always seems to get me into hot water. I think it’s because I don’t have the volition to stick with a stock I haven't researched myself. I need to believe in my decisions.

Here is what I have in my current checklist. I find it helps me take emotions out of the buying and selling a stock. During down markets like this, I will often review past trades to see if my checklist should be modified or updated.


Learning from past mistakes is very helpful!