LOOK FOR BEAT UP STOCKS – How do you know what is a beat up stock? Look for the low of a company you suspect is still solid. A personal example for me was BP. After the company got crushed during the Gulf Oil spill, there were a few things the company was going to do. Truth is the bankruptcy route was not going to happen, thus I thought the stock was beat up. It had GIANT fall from grace. However, the sell off over done. It lost 50% (from about $60 to little under $30).
I took a chance. I had my out-points, I saw all the news was priced in it had seemed, and I bought a little. It rebounded, hit my exit point to the upside, and I got out. Made double digits on the trade, got out, and didn’t look back. One has to be careful though. These bounces sometimes don’t happen. Though, if you are watching closely, they can happen to even the most mismanaged of companies. JC Penney has had four bounces up since the middle of last year.
KNOW THE TREND – Bringing up JC Penney, one can see the trend by looking at a one-year or two-year chart of the company. One doesn’t have to be the greatest wizard of the charts to see the movement and what direction the company is going. JCPenney Yahoo Finance Chart. The company makes lower lows on its moves and lower highs on its bounces. That is NOT to say it guarantees the trend will continue. However, it is a guide and should be used to assist in your decision.
Many traders will show you examples where the trend doesn’t complete itself and changes directions. Once again, this is where stop points are a great final tool and should be used. Using JCPenney break the down trend? Of course it could. They could make a profit, or the street could like a new hiring of an executive, or any array of other things that could turn the people bullish on the company.
These are ways that I decide what I want to buy and why. These ideas work for me, will work for some people, but others have their own specific strategy. Whether it is for investing or trading, the key is having a strategy. I hope for all of us to keep our losses small and our gains big. Happy Investing…(or Trading).