Trading Methodology

Stock Selection

In order to maximise consistency there must be a process. In every part of life, creating and following repeat processes allows for consistency and easy error detection/correction. This does not eliminate the need to experiment but each little laboratory event must be documented and to the extent required to be repeatable. After all, if its successful, I would like to be able to do it again.

I have to give credit to Sean and Jim, http://www.twoguysandyourmoney.com/ , for providing the foundational method for determining market risk. If you want some excellent information on how to evaluate market strength, then sign up for their newsletter. You can also listen to them on the Internet http://www.kfnn.com/ at 5pm (GMT -7) . I don't believe these guys would ever play options but that's probably because they are professionals and I am just an optionnewbie.

My selection methodology

Analyze overall Market condition using bullish percents.

• DOW, NYSE, NASDAQ, S&P

Evaluate Industry and Sector strength (offense or defense) .

• Transports, Finance, Telecom, Etc...
• Determine the sector status, bull (offense) or bear (defense)

Select stocks that trade above 100 within selected sector(s) and determine analyst ratings (buy or sell)

• Use stock scans and find optimal targets

Analyze technical charts starting with Point and Figure (P&F) then candle with MACD, RSI and Chaikin (CMF)

• Look at P&F Bull vs Bear, price objective and signals (triple top etc)
• Evaluate Candle chart with at least three of four indicators confirming the likely direction
• Determine if the play would be a call or a put (short or long)

Review earnings calendar and determine if there is a pending eranings announcement that might influence the trend.

Review the Economic calendar for potential trend affecting news.

Avoid stocks that have news or potential economic impact or gamble and hedge against the unknown.

My next step is going to involve selecting the option technique. At this point I haven't thought much past naked puts and calls. More to come with this strategy.....