Rules For Trading Tenbaggers

Continuation from yesterday……(Rules For Finding Tenbaggers)

Rule #4: Use All 3 Analytical Frameworks:

As was suggested earlier, it would be incredibly difficult to make an investment in any one of our Tenbaggers through the use of a singular analytical tool. When fundamental, technical and mathematical analysis tools are used individually, they give very few clues that the underlying stock issue is about to surge higher. However, when we combine them and they all confirm the upcoming rise, our chances of success increase dramatically.

As was the case with Chipotle Mexican Grill in the late 2008. From the fundamental perspective alone the company was doing incredibly well and growing just about as fast as it could. Yet, the company’s stock price kept going lower throughout 2008. Mostly due to its general overvaluation at the time and the financial crisis of 2007-2009. If we were looking at the company from the fundamental perspective alone we wouldn’t be able to tell when the stock would bottom and when it would be an opportune time to go long. Yet, when we bring technical and mathematical analysis into the picture, it clears up. Giving us a number of signs that the stock price was bottoming and the time to take position was at hand.

Clue #4: When fundamental, technical and mathematical analyses confirm each other, the chances of the stock surging higher increase exponentially. Therefore, companies that have all three analytical frameworks agree on the direction of the underlying stock price are the companies that warrant possible investment. Assuming that all other investment requirements are satisfied.

Rule #5: Wait For a Technical Confirmation:

When we initiate a position in any given stock is about just as important as IF we make an investment at all. A proper entry point can make all the difference between generating substantial gains almost immediately and losing money on the trade. At its worst, an improper entry point can force us to liquidate a position at a loss and at exactly the wrong time. Right before the stock begins its run up. As such, it is always important to wait for a technical confirmation before taking a position. Typically, the confirmation will come in a form of a higher high after a certain bottom is reached or a break above/below a trend line. As a matter of fact, all of our entry and exit points in this book were timed in such a way.

Clue #5: Wait for a technical confirmation before taking a position in the underlying stock.

Rule #6: Trade In and Out of Your Positions (Particularly in a secular bear market):

If anything, one proposed “Truth” has been drilled into investor’s psyche over the last 50 or so years. Buy stocks for the long term and hold them forever. As nice as this catch phrase might sound, it doesn’t work under all circumstances. We deal with uncertain and unpredictable world on the daily basis. As a result we must have the ability to shift our opinions and positions at a moment’s notice. And in doing so, we gain the ability to minimize the risk while maximizing the returns.

Further, it was shown that by trading in and out of our positions at the right times we can easily double or even quadruple our overall Tenbagger performance. Assuming a long enough time frame. All while avoiding soul crushing 50-80% declines and uncertainty associated with such fast growing stocks. In fact, trading in and out becomes the only prudent approach to investing in Tenbaggers over a long period of time. Particularly in bear markets.

Clue #6: Don’t hesitate to trade in and out of the stock when the technical and mathematical analyses call for it.

To Be Continued Tomorrow……