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Trading Recommendations: Avoid Hunches

September 12th, 2013

Unsolicited emails arrive. Popular radio shows push certain trading recommendations. And Internet chat rooms discuss more trading ideas. What is an investor to do? If you’re like some, you get excited about the new information that you hear and develop new trading strategies on-the-fly. A better approach would be to do your analysis before investing in a new company—even better, try to avoid common pitfalls that other investors fall victim to.

What to Focus On

Let the financial numbers prove the health of the company you want to invest in. This trading recommendation will allow you to determine how well companies’ products are selling and if it’s likely they will maintain profitability. While the market will favor stocks with different types of momentum (earnings, cash flow, operating margin, etc.), you’ll be more successful by focusing on several indicators.

To get information about public companies try their Web sites first. Most publicly traded companies have an investor section that contains financial data and reports. The SEC Web site at www.sec.gov., is also a good resource.

What Trading Recommendations to Avoid

Trading RecommendationsInstead of following hunches and gut instincts, practice patience. You’ll experience less loss if you can think with a longer-term mind-set and not be swayed by other’s trading ideas.

Also don’t get too comfortable. You might love the stock and love knowing that you own it, but if loses mount, you must be disciplined enough to sell it and move on.

Be early or late to the party. Again it’s smarter to think longer-term and choose to invest in companies who have a good track record in a number of areas. Over the years, Chuck Hughes has learned this to be true.

Learn other fundamental and technical indicators here.


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