I am sure most of you have asked the question, “When do I buy stocks?”  There is no easy answer, but a good set of rules is as follows:

1. Buy stocks that are $10 or more
2. Do not be afraid to buy stocks with new highs
3. Buy on pull back days on a monster stock
4. Buy when above 50-day moving average

There are more rules than these, but this is a good set of foundations to help you look at why you are buying and when to buy. Make sure your buy is not emotional, make it factual and based on rules you set before you go into buying stocks. A major issue is people do not make rules and stick to them. You must be disciplened when working with the stock market.

You will see many published and online individuals telling you to buy 20-30 stocks to diversify your portfolio. Say you have 20,000 to invest.  Now say you listen to this diversify idea, follow it, and conservatively do 20 trades to initially start.

20 trades at $10 a trade for buy and sell. That is 20 x 2 x 10 = $400

Just to break even, you would need to make 2%. If you were to choose 3 good stocks that had great fundamentals and good technical setup, you would save money. 3 x 2 x 10 =$60. That is a $340 save.

Also, you have to think how hard you’d work while trying to keep up with 20 stocks. Can you really focus on just one? Do you really know what is going on with the stock? Just make sure you cut loses, such as the ones mentioned here. If you have hundreds of thousand of dollars and all day to research diversifying, this much is definitely possible and great. But, if you have limited funds the fees will eat you alive.

Stocks that run up over 100% usually end in a climax. You will see a gap up after the stock has already gone up. Usually, it is a climax of 20-50%. This is a time you should sell and not risk trying to get extra money. After the climax run, the stock will drop past its 50-day moving average and continue to drop. If you look up the charts, you can see this effect on stocks. Some of them are Yahoo, Broadcom, and many others. Looking back on history can help you understand the market a little more.

Before we compare the methods, we must first discuss what both of these methods are, the simple versions.

Technical - A method of using charts and formulas to read and interpret data to make a sound decision on picking a stock.

Fundamental - When looking at the cash flow, net income, sales growth, return on equity, etc. If the numbers look good and volume seems decent, then you should buy.

Both formulas aren’t perfect, thus, combining them together is your best bet. If you can use the basics of each, you can get a better understanding of the stock. Making sure a company has good growth and is not losing money is a good indicator it has a chance to burst out of its base. Using the technical formula can help a lot, too, to see what the stock is doing and if it is forming a base that is solid.

Many investors wonder when enough is enough and when to cut losses. You can get many different answers around the internet.  I look at the professionals who know what they are doing and have a real track record of profit. One of those professionals is Willim O’neil. He has a track record of monstrous stocks and making huge gains. Another is Gary Kaltbuam, whose firm has not lost one percent in the bear market we are seeing right now.

What do these 2 professionals have in common with each other on cutting losses?  They always, no matter what, cut losses after 8%. Stocks can be very emotional, and becoming emotionally attached to something - especially in the stock market - is not good. You will do things you never would have done before.

What can you do to make sure you cut losses at 8%? Create a stock journal and write down what you bought your stock at. Then put the sell point at 8% below that. In the long run, this will help you trim the losers and keep/add to the gainers.