April 17, 2024


Phenomenal Business

A Momentum Trading and Investing Checklist for Big Returns

In order to consistently achieve high returns in the markets, you must learn what stocks to buy, when to buy them, and when to sell them for profit. This requires a systematic approach that helps remove emotions. I recommend using my checklist. This article provides a trading checklist for achieving those large returns we are all after.

Here is my simple proven checklist for consistently smashing the markets as a trader or investor.

1. Use a trading system that matches up the holding timeframe and stock selection with the proper trading methodology and techniques appropriate for that same period of time.

2. Understand your individual stock’s characteristics (conservative, moderate, aggressive, speculative, etc.)

a) Conservative core holdings can be held much longer, especially if they are used to provide income from dividends

b) Aggressive or speculative stocks typically have to be traded in a few weeks to a few months or so to avoid negative results.

You should learn how to catch the strong uptrends and then sell them when they breakdown below key support or the 50 Day simple moving average, for example.

3. Study the company’s short and long term fundamentals including the management – this becomes more important the longer you want to hold the stock – especially for a value investor. The standard benchmarks for finding a company at trading at a good value is to look for a P/E (Price-to-Earnings) < 15, P/B (Price-to-Book) < 1.94, and a P/S (Price-to-Sales) < 0.86.

4. Study the sector and industry that the stock is in to make sure they are also top performers with a good fundamental story. For example, take a look at Schlumberger (SLB). It has great fundamentals as an oil service company and the natural resources industry also has a strong fundamental story going forward as the world continues to run out of oil and the foreign countries like China and India escalate their consumption. But, the timing of your purchase still needs to be made in the right market condition and in right trend for the stock.

5. Watch your stocks’ price movements on a chart, daily if possible, for best results.

– Is it in an uptrend or downtrend?

– Is it holding key support levels and moving averages? (ex. did it breakdown through a long term double or triple bottom support area or the 50 Day simple moving average?)

6. Watch for any stock news (especially bad) because that could start a fast fall in the price. In addition, really good news could boost the price to become significantly overvalued so it might be time to take some profit. Or, in the case of a buyout of your company, you may want to sell the stock in order to use the proceeds to buy another stock. The actual sale of the company can sometimes take months and there is opportunity cost for your money while the price is pegged near the buyout price.

7. As an investor or trader, you need to educate yourself as much as possible about the basics of company fundamentals and on technical analysis (chart reading) if you want to truly succeed in the stock market. Don’t always assume that your financial planner, broker, or advisor know what they are doing and that they are watching out for your best interests as often as they should be. You need to be proactive.

AND probably the most important –

8. Watch the markets’ price movements (DJIA, NDX, S&P 500) on a chart. The reason why the market performance is so important is that it drives the direction of over 75% of the stocks. So if the market is going down then almost 75% of stocks will do down. While it is good to try to understand and keep up with the markets’ fundamental drivers: world events, wars, currencies, inflation, interest rates, government report releases, GDP growth, debt problems, etc., it is typically very convoluted to try to work through the complete picture and predict the future. That is why watching the actual market prices relative to their moving averages and support levels is more critical to your trading success. Sometimes, if you just look at the “current” macro fundamentals or the “current” state of the economy, then you will be on the wrong side of the market. You must understand that the market discounts future news from 6 to 9 months out. The big money players are always looking forward before placing their big bets.

This Momentum Trading and Investing Checklist has proven to be very good at generating big profits for me and I hope it does the same for you.