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Best stocks to buy and other trading answers

Dear followers,

Welcome back in my website once again.

This is a special report and you are about to discover why.

This report deals with the solution of some problems about trading.

Some weeks ago, I sent an email to my followers. I asked for a polite reply to it with the description of what was their

main problem about trading.

I meant that I was available to solve some problems of my followers about trading FOR FREE.

Therefore, I asked for a precise question with an email.

This was the text of that email.

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I would like to push forward your trading skills and the analysis of your doubts about trading.

Therefore, I would simply ask for one basic question today:

"What is your main problem, ONE PROBLEM, about trading?"

Reply to this email of mine by describing it (only ONE problem) and I will solve some of your doubts in the following

emails.

This is a FREE HELP by me. Nothing to lose and everything to gain.

In the meanwhile, be prepared for the incoming new 6-month cycle. Have a good trading.

http://www.mystocktobuy.com/


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Fredrick

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I have received some answers to this email. I have received some questions about that.

There are questions dealing with specific problems about trading, just like the best stocks to buy and others that refer

to starting from the scratch in trading and so on. It has been an interesting mix.

Therefore, I have decided to give an answer to all those questions with a deep description of the likely solution for

each of them. I have share my point of view in my website.

It has been a great work and it has taken me some weeks to carry it out.

I have listed here all the questions in an anonymous form, so that my answers can be useful to those persons who

sent them to me and to all the other followers of my website.

The first statement consists of the question that I have received and I have placed my answer immediately below it.

I hope that this work can help one another all my followers.

Trading is a continuous learning process.

Here is the list of trading questions and my answers.

Q. How can I find the best stocks to buy?

A. I have established my website to give an answer to the previous question and to help people in finding them. What

are the best stocks to buy in whatever stock market? I will answer by giving an example of my experience.

I wanted to base my choice of the best stocks to trade only on mathematical formulas dealing with prices and volumes

and not on fundamental analysis. This was my challenge. I did not found a complete study about technical stock

picking that satisfied me enough.

I cannot reveal too much of my work and formulas, but I can explain some aspects of my process in finding these very

good stocks.

A stock is one piece of a company. If this company produces increasing net profits, its value will grow. Period.



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There are two kinds of stocks: those, which hit the interest of great funds and those ones that do not interest to them

too much.

The first ones are the stocks where I can see a spike of volumes (interest). This simple aspect makes me to

understand that such a stock will increase in value with high probabilities. Why? Because, a fund has to gain money.

It has to prepare and to create a subsequent trend to accomplish its goal. My probabilities of success are higher by

doing this. The resulting stocks, obtained with this first screening, are not the best stocks to buy, yet.

I want them to be in an uptrend that confirms the increasing earnings of that company.

Nevertheless, this is not enough. Best stocks and best companies have something special: the ask for such stocks

must be much greater than the bid. I have developed a special indicator that measures the difference between them.

The higher, the better.

Besides, if a stock is really very good, I do not want to see high sell volumes on the recent tops. This means that it is

worth maintaining it. This demand creates a further lack of bid.

Then, when I have put aside many stocks that do not pass all my 15 conditions (I have described only some of them

here), I put the leaving stocks in order. This order is one of my secret weapons that I do not want to reveal (the

16th condition). I focus on the first 40/50 stocks that come out from such a process. I am the last condition (the

17th condition). A stock has to pass my final judgment to become a best buy stock.

All this process is simple but not easy. It works well enough in particular at the beginning of every new 6-month cycle

when funds put their money into the stock market.

It has been difficult to program all the conditions of my filter that a stock must respect. Many price patterns that I

recognize with an eye shut, are almost impossible to translate in mathematical formulas for my stock picking filter.

Therefore, there is some manual work required.

I have describe the philosophy of my approach. It is quite logical.

If I were to suggest you how to find the best stocks, I would say to look at accumulation volumes as the first step.

Then, you should understand if a new uptrend is ready to start.

Look at the long term graphic and then to the short term graphic. Try to understand if the price is likely to go up with

that long trend.

Discover what are the patterns both of volume and of prices that have generated huge uptrends for some stocks.

Focus on this process. As I am used to say: there is always a good stock to buy in your journey. If it is a best stock to

buy, it is better.

Remember that a stock is a part of a company. If that company has good and positive net earnings, its stock will

behave accordingly and it will rise.


http://www.mystocktobuy.com/best-stocks-to-buy/


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I mean that even if you are a trend following trader, stocks do not move randomly. They move by following the

evolution of the fair value of the corresponding company. Remember this important aspect when you will wonder what

stocks to buy next time.

Last thing. What about the stocks that show little volumes of accumulation before the start of a new great uptrend.

There is no sure link between an accumulation area with low volumes and a following great uptrend. I have been

studying this problem in the last years and I am keeping on my study. However, I think that the only way to solve this

problem is by the means of fundamental analysis. You should calculate both the fair value of the corresponding

company and its level of undervaluation.

I think that there may be a solution to this problem by only using technical analysis and I am still looking for that.

Nevertheless, the real problem is another one: to obtain a great return with a low risk. One stock is a simple

instrument to obtain a return. It is up to you to prefer a low or a high risk.

Anyhow, I prefer to follow three simple principles when I trade:

1. The first rule is not to lose my capital;

2. The second rule is to remember the previous rule;

3. The third rule is to gain money.

These are the reasons why I prefer to buy the best stocks with low risk. Risk management is everything in trading just

like in one’s life.

Therefore, my best advice to you is the following: discover what the best stocks have in common before their uptrend

starts.

Q. I am biased to the short side, as l have no belief in the rally. Fear of buying an expensive market that will

crash at anytime

A. I can understand your fear, but I cannot understand the doubt of following a specific trading method, that has

proved to be successful in the recent past.

The question is: “Who the hell can declare that a stock market is overvalued? Can you?”

If the FED continues to print money, economy will improve. Companies will produce higher net revenues and their fair

value will grow. So, their uptrend will continue.


http://www.mystocktobuy.com/best-stocks-to-buy/


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I can say that the stock market is likely to be mispriced now. I mean that it is overvalued according to usual formulas

that help an investor to calculate the fair value of a company based on its balance sheet data.

However, if your system tells you to buy, you have to buy with stop losses in place and with a clever system of money

management.

I had the same problem some year ago. I let my feelings to overcome my trading system. I decided to change it by

using a simple break out channel system.

I wanted that my system, something simple, to show me what to do to me, by not depending on my judgement

absolutely.

My trading results improved. I think that having a mathematical trading system is the best way to overcome both fear

and greed. You need to decide if you want to be and investor or a trader.

If you want to be an investor, you have to wait for undervalued prices of stocks before buying.

If you want to be a trader, you have to choose a method that corresponds to your character and you have to follow it.

In this case, the fair value of a stock is less important. The shorter the timeframe is, the less important the fair value

is.

You are a trend follower trader; you are not a fair value trader. Period.

Besides… you write “A market that can crash at any time”. I can reply: “… with all the money inside?”

It is not possible. If a market is likely to crash, you should see a huge amount of volumes coming out from the market

on every possible top.

Great funds have to exit from the stock market days before it crashes. They risk their money and they do not want to

lose it…

Great sell volumes preceded every crash of the stock market, during a distribution phase. It is not possible that

something different takes place. It would be very rare.

I think that good trading consists of two main elements:

an observation of what happens in a very simple way;

a reaction to the market according to what your trading system tells you to do.

I try to do simple things always.



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Q. WHEN TO SELL A STOCK?

A. A quick answer of mine could be: “You can sell it when something contrary respect your buy signals takes place”. I

am joking obviously, but not completely.

You trade stocks by looking for a good trend to catch. You buy them after a bottom and you sell them after a top.

However, what is a top and what is a bottom? They are respectively a distribution and an accumulation pattern. Such

patterns take place in whatever cycle: from the 3-day cycle to the 5-year cycle and on.

Therefore, the real problem is not when to sell a stock, but what is the period of time (cycle) that you are willing to

trade in.

Once you have defined your trading timeframe, you can decide your entry and exit points.

Every trader has to answer to such a question.

After that answer, you can choose your entry and exit point by looking to moving average break outs, channel

breakouts, overbought/oversold areas of an indicator etc.

You have both to choose your method and to follow it.

Let me make an example.

Let us suppose that you like to trade the 3-month cycle. Your entry points and exit points could be:

the break out of a single moving average that represents such a cycle (a 35-day simple moving average, for

instance);

the breakup of the top of the previous 3-month cycle and the breakdown of the line that joins the current 3-month

cycle and the final bottom of the first 30-day cycle, during the second 30-day cycle;

when you see great volumes during a bottom and the price of a stock starts growing, you can enter. When you

see great volumes during a top and the price starts declining, you can sell.

There is not a single way to enter or to exit from a trend. It depends on your trading style.

Each trader has his own trading style and entry and exit points are only one part of his tactic.

Your main goal is to understand what is your preferred trading timeframe and to act accordingly.



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For instance, I look for the best stocks to buy every quarter of year according to the 3-month cycle.

Sometimes, if a trend is particularly strong, I hold my position for 6 months (rarely).

All my trend follower-trading systems have been set to trade a 3-month cycle.

Therefore, I want to repeat such a concept: choose your cycle, and then find your personal method to catch the main

part of a trend in such a cycle.

This exercise will allow you to define your entry and exit points.

Q. Not having a method - edge & profitable model along with rules of entry exit and position size.

A. By reading your man problem, I understand that you are starting from the scratch. There is no problem. I have

created my website to help persons like you, too.

Therefore, where can you start?

I have sent a list of 38 points to you to become a successful trader by email, during your initial subscription phase. I

think that those points represent a very good guide that you can follow. Besides, I want to add the following ones:

1. write what you are willing to obtain from trading (the amount of return per year, more knowledge of finance,

satisfaction, etc.). Reflect about that;

2. write how you are disposable to trade (once per day, once per week, every 3 months, etc.). Reflect about that

deeply;

3. understand what are the financial instruments that you are more compatible with: those ones that you think will

help you to reach your goals (stocks, bonds, futures, currencies etc.);

4. are you willing to start a journey dealing with both continuous study and improvement? If your answer is “yes, I

am”, then you can start. Trading is a never-ending-learning process;

5. decide if you want to be an investor (fundamental analysis mainly) or if you want to be a trader by developing your

personal technical method. This choice is a crossroads in life: chose only one of the two ways;

6. it is time to study, now. I mean that you need to study some books that give one solution to the answers that you

have written above. You have to develop your personal path. Simple books are the best ones in this phase. I

suggest studying cycles as a part of your trading tactic. A personal trading coach may be a good advice for you;

7. you can start to develop a trading system that you are compatible with. Develop it and verify if it works. It does not

matter if it is very simple because it relies on simple moving averages or breakouts: start doing something. Look

for buy and sell signals. Make paper trading. Improve your system more and more, every day. Keep things very

simple;



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8. when your confidence has grown enough in your trading system and your paper trading is successful, start to

trade with real money (1000 $ is enough at the beginning);

9. use only a fraction of that capital for every trade to start trading. 100$ or less is enough. Focus on following the

signals of your trading system rather than on being right or to make money. Learn not to think of what you are

doing, but to follow your trading system (this is a mistake that I still do sometimes). Chose a discount broker with

low commissions per trade;

10. as regards the position size, I can guarantee you that there is not a precise formula of position size. In general,

you can find formulas like those by Larry Williams (my favorite one), John Kelly, Ralph Vince, etc. However, my

tests have demonstrated to me that the optimal position sizing can be discovered by back testing a trading

system. I can obtain a Gaussian curve that shows the optimal bet for the average trade. I test a percentage of my

bet starting from a 1% to a 25% of my capital. However, the higher the percentage at risk is, the greater the

temporary drawdown can be. As you are a novice trader, I suggest using a simple formula. It is the following: risk

enough on every trade to be satisfied for what you have just done, but not too much to be worried about that. This

is the best money management system for you. I think that such a percentage has a range between 5 and 25%

for each trade. I repeat myself once again: you need to be comfortable with what you are doing, as you have to

follow your personalized trading method. This is true both for your entry and exit signals and for your money

management.

As time passes, you will be able to optimize each aspect of your trading from a mathematical point of view. However,

keep it simple at the beginning. Becoming a trader or an investor is a personalized process that you have to develop

with patience day by day.

Is it worth it?

You can be a short-term trader, a medium term trader, or a long-term investor. It depends on your personality. It is

your personal choice about that. Every choice is good. There is not a best choice. There is only one choice that is the

best for you. However, all they have one thing in common: time passes away at the same. It is up to you to make or

not to make money in the meanwhile. I think that when trading becomes a successful and a boring activity, you have

done your work. This form of passive income satisfies both your mind and your wallet. It works so for me.

Good luck!

Q. I find my major problem is do not know the buying point and the selling point. Everyone knows to buy at

the dip, sell at high. But few people know where is the dip and where is the high.

By the way, I want to joint your membership, but my concern is how accurate is your pick? Is there any way

you can let me know the accuracy of your pick?



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A. I would like to answer to your question with another question: “What is the graphic of a stock?” the graphic of a

stock is the evolution of the fair value of the corresponding company over time. I mean that great funds buy when a

stock is undervalued and they sell when it is overvalued.

You can calculate the fair value of a company in many ways. If you want to be an investor, you can calculate the fair

value of a company and buy their stocks when it is undervalued.

Make this by using its balance sheets.

For instance, the fair value of a company is a multiple of its EBITDA. Let us suppose that the fair value of a company

is 4 times its fair value (this happens many times).

In a certain moment, the market capitalization of a company is 3 times its EBITDA. What do you think? If the amount

of EBITDA is constant enough, you can understand that this company is undervalued a 25% about.

If the value of a company is 5 times its EBITDA, this means that the same company is overvalued a 25%. It is easy to

understand when to buy and when to sell.

If you are a technical trader, you have to analyze volumes and not only prices.

Great funds buy great quantity of stocks every time. Therefore, if you see a spike of volumes, there is a potential

interest in that company.

Remember one thing: these funds have such an amount of money that they cannot hide anymore.

You can use simple moving averages, a break out channel and many other indicators. However, if you trade in the

middle term, you have to deal with the evolution of the fair value of a company and with the price cycles.

Determinate the length cycle that you are willing to trade in and set your indicators and moving averages according to

the length of the chosen cycle.

Look at volumes always: money moves the stock market! If there are volumes higher than their monthly average for

instance, a bargain may be in place.

There are many ways to determinate buy and the sell points of a stock. However, they depend on the trading tactic

that you are willing to use.

In general, there is no fixed dip and no fixed high. They modify over time because the fair value of a company

modifies.

As regards the accuracy of my stock picks, it is the following. When I want to buy a stock, I want to see an

accumulation pattern before a buy signal takes place.

A buy signal can consist of a break out of a previous top or a break out of a moving average. It depends by many

factors. It is sure that I want neither to buy much closed to a supposed bottom nor to sell much closed to a top. I want

to be sure that a new cyclical trend has just started.



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Trading stocks and the best stocks to buy is a probability game. My entry and exit signals are worth to be followed in

the following 3 days since the moment I offer them.

Trade when probabilities are greatly in your favor and the potential reward/risks greater than 3 times.

If you are a trend follower trader, you need to follow a trend: you do not need to try catching tops and bottoms. This

aspect is important in term of putting high probabilities in your favor.

Q. Uncertainty is my biggest problem in trading. Even with multiple indications of a turn, I'm hesitant to place

a trade.

A. Many times, you have been told that you can’t be always right when you trade. You know and this fact is your

source of uncertainty. The problem is: “Where does this uncertainty come from?”

There are many causes. I list here some of the main ones:

you do not know the current data of the income statement of a company that you are willing to trade. You will

know them with a certain delay. If you knew that its data are incredibly good, you could buy it blindly;

you do not know what the FED is doing now. I mean that you do not know if it is printing money or if it is not. This

activity makes the stock market and the economy to expand or to contract;

even if you have built a good trading system, have you optimized it? Have you back-tested it? If you rely on

indicators, have you organized them in a correct way? These questions have been born in my mind. If you are a

technical trader, you use a method that works well from a statistical point of view. This means that it can’t be

always right. You have created a statistical trading system that has an edge. When you are right, you have to gain

much more than what you lose when you have loosing trade. Let us suppose that your trading system is right the

50% of times. You average gain is a 20%. Your average loss is 5% (your stop loss for instance). Is this system

good? You can bet it is good! In fact, your average gain is 4 time greater than your average loss;

trading is a game that works in such a way: great funds buy stocks from common people when they are

undervalued. Besides, great funds sell stocks to common people when they are overvalued. The number of stocks

exchanged is usually the same. Great funds use whatever trick both to buy and to sell when the need. False

starts, pullbacks, false tendencies etc., are some of the most used tricks. This is their game and it works in such a

way. Can you beat them? I think that you can by following the main trends, preferably.

All the previous cited aspects create uncertainty.

What can you do to limit this uncertainty and your fear in taking a position?



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I think that you can proceed in this way:

does your method correspond to your personality? Does it give you what you want? If it does not, fix what is

wrong.

make your trading system as simple as possible. Put away what is not important. Concentrate your trading system

on 3 things at most. The simpler it is, the easier it will be to follow it;

when you have simplified your method, back-test it in the last 5 years. You can analyze its strengths and

weaknesses form an objective point of view. You can do this by the means of a simple software like Metastock or

Amibroker. However, you can do this exercise by hand;

you can focus on how to improve your method now. There is always something that can be improved. Then, test it

again.

This simple process is important for two reasons:

1. you create a trading system that is your personal trading system that you can use. This satisfies your

mind and you can follow it easily;

2. you build confidence in your trading system. This confidence will help you to follow it because you know

its strengths and weaknesses.

I have followed this path too when I developed my trading systems. I think it can work for you too.

Start working now.

Q. Is there a way to estimate when to exit a trade?

This element of each trade is perhaps even more important than the point of entry. It is important to me

because I am a novice, and it is something still very unclear...

A. I have just given an answer to such a question in this article. Therefore, I am not about to repeat the same things. I

want to extend such a discussion towards a probability point of view.

Is the exit from a trade more important than the entry? Sure it is! Why?



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Because the most important thing in trading is preserving your capital for other successful trades that will take place.

This is simple. You need capital to trade. If you consume your capital entirely in wrong trades, you cannot trade

anymore. Money management is the most important aspect in trading. Understand how much of your capital you will

risk in each trade and understand where to set your stop losses.

You can exit from a trade when your stop loss has been hit. The amount of such a stop loss depends not only on your

stomach but also on your trading system.

I mean that you can use as a stop loss:

a fixed amount of money that you can lose;

a fixed percentage of the capital that you have used in the single trade;

a price that is a support level for a buy signal. If that price is broken down, this means the trend is not upward

anymore.

As regard stop losses, I prefer the percentual stop losses.

If you are a technical trader and you have a trading system, you have to optimize your system by looking for the best

percentual stop loss that maximizes your gain.

Start from 1% and go up until a 10%. You will discover that your gain varies according to the value of the percentual

stop loss. It is a Gaussian curve. Its top will make you to discover what is the best stop loss for your trading system.

The correct stop loss is very often misunderstood for each trading system, but it is very important.

You have to elaborate a program to optimize the correct amount of stop losses for you trading system. It is simple

enough, but you need a software like Metastock or Amibroker.

If I were to give a simpler answer, that does not require many mathematical calculi, I would suggest you to observe

volumes.

I consider volumes the best indicator available because they represent money that makes the stock market to move.

In particular, consider the volumes that are present on the bottoms and on the tops.

I think that those volumes have an intrinsic probability of about a 70 % to predict the incoming trend.

Volumes are money that looks for return (buy point) or they are money that turns paper return into real capital gain

(sell point).

A spike of volumes suggests that something is about to happen. The price of a financial instrument will confirm a new

trend soon after.



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Therefore, pay attention to anomalous spike of volumes. They suggest you that something important is about to

happen.

I send you to my previous answer for the other aspects of exit points.

End of the question and answer list.

Answering to all these questions in a detailed ways has been a huge work and it has taken a lot of time.

It has been useful for me because I have reflected on many aspect of trading that I considered things for granted. I

have understood that many things in trading that are simple for me, but they are neither simple nor clear for many

persons.

I think that my answers can be useful for those persons that have a certain mental confusion about trading. They

cannot understand the order present in financial market yet. There is an order in each financial marker. For me that

order is represented by cycles and some other elements.

I faced trading 17 years ago. I have made all the possible mistakes along this journey. I have studied so many books

both to fix some of those mistakes and to increase my knowledge, that they are uncountable.

I have had several teachers with different points of view. I have built my way in becoming a successful trader day by

day. I keep on learning, studying and making mathematical research applied to finance.

As a conclusion of this article, if I were to give some general good pieces of advice to solve your questions

even further, I would say:

keep things extremely simple, as regards every aspect of your trading plan;

do not rely your trading on judgments, but only on mathematical and objective data: numbers count, all

the rest is nonsense;

trade always the financial instruments that you like, only when probabilities are greatly in your favor.

There is one thing I am sure about, by looking to FED and BCE data: trading will become more and more important in

future.

Therefore, it doesn’t matter if you are a short-term, or a long-term trader, or you are an investor: do something.



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Try to understand better economy and finance: they move the world.

Chose the timeframe that you are willing either to trade or to invest in and do it. Finance has overcome real economy

in western countries and you have to understand that.

This simple fact should push you to increase your knowledge of such an argument. Keep on studying.

I would finish my article with this phrase: “One thing is difficult until it becomes simple”. Think about it. Finance is

not difficult: a lack of knowledge makes it difficult.

See you soon.

Best regards,

Fredrick

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