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Understanding Your Position

It seems like common sense but understanding your position can be a very difficult and complicated issue.

First and foremost is the importance of entry into a position. Again, seems simple but is far from it. There are plenty of investments out there and if you don't happen to get your ideal entry it's not the end of the world. Be patient and move on to the next potential position. Get your ideal entry, you'll thank yourself later.

Know what entry you want and go for it. Deciding to buy a stock without doing your research is the worst way to enter a stock. Know what setup you are looking for and get cocky. Go for the perfect entry, chances are you will surprisingly get the entry in early trading when volatility is high or in a down day. Now I'm not saying to expect a huge discount, just realize that pulling the trigger and placing a market order is usually not the way to go. Place the limit order and be confident. If it doesn't hit move on.

Know what return you are going for & know how much you are willing to lose. Set your goals and stick to it. Know when to let it ride and know when to take profits. Selling half when your up is always a great idea, especially in retrospect.

Don't look at it all day everyday. Set your stops. Have non emotional reasons behind your actions. Know your intended duration and set your stops accordingly. Duration should directly correlate with your anticipated return and your stops.

Understand your moving averages. Testing the a moving average can be very healthy and you need to know that a test isn't always a reason to get frantic. Know about the bearish signals (death cross). Know the bullish signals (golden cross). These will come in handy.

Set rules. Personally, I have a new set of rules. Set your rules and stick to them!

1. Don't play earnings.

2. Know the technicals. (moving averages etc)

3. Consider the fundamentals. (P/E growth, beta etc)

4. What's the trend? -Do they always lower guidance? etc..

5. Don't buy energy.

6. Don't buy retail.

7. Don't buy commodity based stocks.

8. Don't buy ADRs.

9. Don't buy biotech.

10. Don't buy penny stocks.

11. Don't rely on binary events (press release, phase 3 trial results etc.).

12. Don't buy downtrend dogs. "Never try to catch a falling knife."

13. Know the Macro environment and upcoming events. Consider the overall market. Bernanke is about to talk or Obama, China data on tap, Eurozone recession, S&P in downtrend. etc.

14. Know the peers. Knowing the peers is a big one that often goes untouched. If you buy Yahoo the day before Google earnings your still playing earnings and in violation of rule #1.

15. Know your earnings dates.

16. Understand what the insider trading is telling you.

17. Analyze the Income Statement and Balance Sheet. Looking solid? Red flags?

18. Don't buy banks.

[this is a work in progress]