“The way to learn to do things is to do things. The way to learn a trade is to work at it. Success teaches how to succeed. Begin with the determination to succeed, and the work is half done already.” -Benjamin Franklin
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In my last post I demonstrated the very basics of reading a stock chart. The next step is learning how to spot chart base patterns and when to buy a stock. A chart base often acts as a foundation for stocks to “jump” off of; to begin a large share price increase. Spotting and understanding chart bases is a science that takes time and experience to learn. It is a skill that I am still working on, and I hope that writing this post will help ingrain the concepts in my own head. That being said, the best resource I have found for learning about chart patterns and all the intricacies is William J. O’Neil’s book, How to Make Money In Stocks and Investors Business Daily/Investors.com.
There are several base patterns that William O’Neil and company have studied and present to us to watch for. “Cup-With-Handle”, “Saucer”, “Double Bottom”, “Flat Base”, “Ascending Base”, and “3 Weeks Tight” are 6 principal patterns.
Cup-With-Handle
The Cup-with-Handle Base is probably the most common base pattern. It looks a bit like a tea cup when viewed from the side. Here are characteristics to look for as this pattern forms:
1. A prior uptrend of 20-30%.
2. Depth of 15-35% from peak of prior uptrend to bottom of cup.
3. Length of at least 7 weeks from start of the “cup” to the end of the “handle”.
4. Handle formed in top half of base and a pullback of 10-15%.
5. The buy point will be when, after the dip, the price reaches the same price as the handle peak plus 10 cents. You want to see this “breakout” to the new high on higher than normal volume.
 Apple Chart - Cup with Handle Base. Click to see full Price Increase
Here’s an example of a Cup-with-Handle in action. Apple (APPL) broke out in March 2004 and went on to post over 1400% in gains in less than 4 years.
1. Cup with Handle Base.
2a. Handle drifts down along lows.
2b. Volume dry up in handle.
3. Buypoint – 10 cents plus peak of handle.
4a. Breakout.
4b. High Volume on breakout.
Continue reading Chart Base Patterns
A basic foundation of researching stocks is the stock chart. Stock charts give us a picture of how stocks have performed in the past, and can give us clues on how they might perform in the future. A basic chart simply displays a stock’s prices over a certain period of time. The time period can be any where from hours to years to decades. Commonly charts would be daily or weekly prices over a period of 1month to 1 year (52 weeks) along with each day’s/week’s volume. The stock’s price is often displayed in 1 of 3 ways – line chart, OHLC chart, or Candlestick chart.
- Line chart – The most basic chart. Shows the closing price for each day or week over the time period.
 Line Chart
One characteristic of every successful investor is that they all adhere to a set of investment rules. It is one thing to have rules, but it is not an easy thing to follow them and these rules will likely be more guidlines than hard and fast rules. Following are my rules that I intend to follow. Anytime I buy a stock I will have a checklist for each of these rules. These rules will also likely be added to or modified as I continue to learn from my mistakes and successes.
Buy Rules
Buying a stock is easy, maybe too easy. Anyone can hear a tip, or read about a company and go to a broker and purchase some shares. But I believe in being selective, and doing research before diving in. These Buy Rules should keep me from buying on a whim, which I’m sure leads alot of investors to bad results.
- Most recent Current Quarterly Earnings must be up at least 25% from the previous years same quarter.
- Annual earnings must be up at least 25% for each of the last 3 years.
- Look for new products or services, new management, or new conditions. Also new price highs.
- Look for stock coming out of a base on higher than normal volume
- Look for leading company’s in their industry.
- Look for institutional sponsorship.
- Be sure the overall Market is in an uptrend.
Sell Rules
As I said before, BUYING a stock is easy. The hard part is selling! Amatuer investors will often buy a stock, and hold on to it as it tanks thinking that it will bounce back, but it never does. If a stock does go up, then many investors will hold on too long thinking they will miss out on even more profits if they sell too soon, but then the stock reverses and any gains are quickly lost. Hopefully these sell rules will keep me from holding on to losers, and allow me to take good profits.
- Take a profit when the stock increases 20% from my buy point (unless the stock increases more than 20% in less than 3 weeks).
- Cut losses short at no more than 8% below my buy point.
- If there are 3 consecutive general market up days, and the stock has fallen or failed to keep pace with the market each of those days.
On October 27, Visa announced a $1 billion stock buyback program after reporting a 4th quarter profit of $514 million. This is good news for anyone owning shares of Visa such as myself. When a company buys its own stock this reduces the number of outstanding shares and results in higher earnings per share (EPS) which is one of the main drivers of stock price. A stock buyback also implies that the company is expecting earnings to increase in the future, which again means higher EPS and increasing stock price.
I don’t buy in to the belief that you need a large amount of money to begin investing. Some “experts” say you need at least $5,000 or even $10,000 to get started in the stock market. I say bullshit. As you can see from my Postions Hstory, I started with an initial deposit of just $1,000 and bought 8 shares of V and 20 shares of SIRI . I believe you don’t even need that much to start, especially if you are like me and don’t really know what your doing. You can start with $500 or even $100 and then add a little to your account whenever you have some extra money to contribute. And when you are just starting out and just learning how to do the simplest of things like placing buy and sell orders at market, and then maybe placing stop orders, why do you need to be playing with thousands of dollars? Of course the more money you have, the more money you’ll be able to make. But when you’re just learning like I am, you are also more likely to lose alot of that initial money.
Continue reading Starting Small
Welcome to LearningStocks.net! This site will chronical my stock trades and my thoughts on investing in financial markets. My hope is that this will become not only a Stock Journal, but also a resource for learning about investing. By teaching myself I hope that others may also learn about stocks, and that this site will be a catalyst to make money in the stock market by learning from my investment mistakes and successes.
My current day job is as an IT professional, and I entered the stock market without any knowledge or training in the field. I imagine the same is true for many others and they most likely have similar results to what I have had – not great. Starting my stock learning journey at the height of the Bull market in April, 2008, I thought it would be easy MONEY. Well, I soon found out that making money trading stocks is NOT easy. The market started its latest crash later in 2008 and my stocks went with it in the epic decline. I can’t stand losing money! (who does?) and I’m not one to give up either. So I decided I would learn as much as I could before buying any more stocks. I began reading books on investing and studying the market in earnest. But reading can only take me so far; I need to immerse myself to really learn. I am striving to take the advice of William O’Neil’s How To Make Money in Stocks; “Don’t just dabble in stocks…DIG IN.” Another recurring imperative is to keep a stock journal and I thought a website would be a great way to do just that and immerse myself in stocks at the same time.
Continue reading Immersing Myself in Stocks
I just started this site and hope to be posting on a daily basis about stocks I have bought and sold, and my thoughts on financial markets. I hope that it will be interesting for readers to follow me on this journey as I learn and try to increase the value of my portfolio. And if you are just starting out or are thinking about investing in stocks, I hope you will find this site a great resource to start your learning. I know there are many many stocks and investing websites out there, but I have yet to find one that is beginner friendly. Most investing websites are very intimating and make it hard to find the information you need to get started. LearningStocks.net will be a site where beginning investors don’t have to feel intimidated.
This is also my first website/blog and am learning how to run a website as I go. Things may be a little slow to start, so please bare with me as I get the site ramped up. And please feel free to comment, and make suggestions.
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