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Kindle Notes & Highlights
If a company pays a dividend, it is usually not a good candidate for the momentum stocks strategy.
We want to see revenues, and we want to see them growing rapidly.
For a trend-following candidate, we want to see annual revenue growth greater than 20%, as a rule of thumb. Three-year average revenue growth should also be north of 20% ideally, though this can be a lagging indicator.
The ideal candidate: is a New Technology Company, or Formula Company
has an annual revenue growth rate north of 20%.
When stock's 50-day moving average crosses over ("closes higher than") its 200-day moving average; and Only if the stock is currently trading above its 50-day moving average when this crossover occurs.
If the 50-day moving average closes BELOW the 200-day moving average, sell the stock the next morning when the market opens. The trend is now over and it is dangerous to remain holding the stock!
If the stock rises 300% from your entry price, exit the stock completely and take profits.
number of shares to buy = (account size times the percentage risked on each trade) / (entry price - stop loss) = ($10,000 x 0.02) / (17.07 - 14.50) = 77.82 shares, which we will round up to 80 shares.
If you are just starting out, it might make sense to spread your capital over 15 stocks. So if you are trading a $15,000 dollar account, every time you get a buy signal, you allocate $1,000 to that stock.
That being said, if you wish to maximize total trading profits over an entire lifetime, you should always wait for the moving-average crossover before you take profits.
It’s important to remember that when trading momentum stocks, you will have losses.
certainly protect ourselves against one by exiting a long position when a stock’s 50-day moving average crosses below its 200-day moving average.
When you borrow shares of a stock from your broker that you wish to short, you will need to pay a fee that is based on how long you borrow the shares for.
As we have seen, the stock needs to fall faster than your borrow rate, or you will end up losing money even if the trade itself makes money.
When a bear market begins, take all of your chips off the table and go hang out on a tropical beach somewhere.
