To be able to pick stock, one should have the right skills and knowledge, and not to mention experience and the correct mindset. Computer program and indicators can only provide the statistic.
Nonetheless, investors still need to start from some where. Therefore, we had prepared a sample Trading Plan Check-list for investors, especially beginners, as a guideline.
| Stock-pick and Trading Plan Check-list: Trading Objective: ______________________ (1) Stock Name / Business Nature: __________________(2) Sector: __________________ (3) Fundamental Analysis: PER: _______________ (4) Dividend Yield __________________ (5) Yearly Dividend: ___________(6) Yearly Dividend Yield:___________(7) Net Profit Ratio: __________(8) Technical Analysis: Buy Signal: __________(9) Maximum Loss: __________ (10) Support:__________(11) Resistance :__________(12) Trading Plan / Trailing Stop: If Price Should Go Up:__________ (13) Trailing Stops and Profit Taking Plan. |
In conjunction to the above trading plan check-list, below are some important questions that one should ask themselves before deciding on any trade.
| 1 | Trading Objective: Understanding the characteristic of this stock that you pick, for long term, dividend income, for trend trading, or for short term rebound? Initial objective shall not be altered, unless profit is yield. |
| 2 | Company's Name, and its nature of business, where does the revenue come from? |
| 3 | Understanding Sector: Because stock mostly don't move alone, and therefore, to understand the trading sectors, is a first time towards understanding the mass movement of the market. |
| 4 | Current Price Earning Ratio of stock. Make sure it is relatively not too high (Refer to Chart 1) |
| 5 | Dividend Yield: Dividend received is another source of trading income. Especially for long term investors. |
| 6 | Based on the dividend paid-out history, one can safely guess that the company has cash, therefore, they can pay out dividend. （Refer to Chart 2） |
| 7 | Higher Yearly Dividend Yield: A higher than 5% dividend yield is usually considered as high yield stock. Suitable for long term investors who seek for consistent dividend income. (Refer to Chart 2) |
| 8 | Net Profit Ratio measure the portion of the total revenue received which can be retained as net profit. A company which has a good Net Profit Ratio generally manage their expenses well. (Refer to Chart 2) |
| 9 | Buy Signal: Using Bollinger Bands, Moving Averages, Patterns Break out. Etc. |
| 10 | If price should fall immediately after buying, it means that either the market has changed, or the analysis was not done right. Either one of the reason, it is only logic for investors to cut-loss. |
| 11 | Support level, is a level which price is most likely to rebound. Therefore, if your cut-loss point is very near or at the support level, you might want to wait for a possible rebound. If price should break below the support, price would be making new-low, thus a signal to cut-loss. |
| 12 | Resistance level, is a level which price is most likely to retreat. Therefore, should price approach a resistance, it is generally safer not to top up position at resistance level, unless a valid break out above the resistance. |
| 13 | Trailing Stop: When price is moving higher, and one should take profit too early, he or she might miss the potential strong uptrend. Therefore, one should never worry about selling at the top, but instead apply a trailing stop method, by raising the stop-loss level gradually as price moves up. (Refer to Chart 3) |
Chart 1: Company's Financial Summary with PE and Dividend Yield.
Chart 2: Yearly Dividend, Dividend Yield, and Net Profit Ratio.
Chart 3: 14, 21, 31 EMA serving as the dynamic support as well as the Trailing Stop reference.
This week's Case Study: Maybank
Chart4: Maybank - 1155, chart from 28/07/2009 to 19/11/2009.
As indicated by A, the Bollinger Bands of Maybank has been contracting for a certain period, suggesting that price of Maybank is consolidating. Current, there is some sign of a re-expansion of the band width, with the price above the Bollinger Middle Band, the immediate outlook for Maybank is on the positive side. If the Bollinger Bands should re-expand with price staying above the Bollinger Middle Band, there is a good chance that price of Maybank could break above the RM 7.00 resistance. Then, the Bollinger Middle Band shall serve as the dynamic support as well as a trailing stop reference.
In other words, provided that price of Maybank is still supported by the Bollinger Middle Band, the upside biased movement shall carry on. Until price should break below the Bollinger Middle Band, it would be a signal to take profit. Other than the Bollinger Middle Band, the support for Maybank is at RM 6.60 level. Therefore, if an investor should fill out the Trading Plan Check-list, he or she shall find out the elements required for trading right.
Financial Summary as at 30/9/2009.
| 4 Q Rolling PER | 34.36 times | Dividend Yield | 1.15% |
| Dividend | Dividend Yield | Net Profit Ratio | |
| 30/6/2009 | 8 sen | 1.23% | 3.93% |
| 30/6/2008 | 52.5 sen | 7.00% | 18.13% |
| 30/6/2007 | 80 sen | 6.50% | 20.95% |
| 30/6/2006 | 85 sen | 7.94% | 22.07% |
| 30/6/2005 | 102.5 sen | 9.40% | 22.31% |
Table 1: Maybank Financial Summary
Conclusion:
There are many investment vehicles in the market, be it Stocks, Unit Trust Funds, Futures, Options, Forex, and etc. Each product has their trading rules and risk, and there is certainly no short-cuts in getting rich in trading. One should always aware that trading is a Zero-sum game, and therefore, should anyone be promising any trading product is easier to make money than others, you would just have to ask yourself one question: “If the money is easily made, then where does my profit come from?”
Nothing is free, and so as no one could give you any trading advice in just a few minutes. Every one is different, his investment mentality, knowledge, capital, etc. Therefore, even if one should found an advice from a so-called expert, the advice will only temporary do good to the investor. Therefore, one should be able to answer the above questions in the trading plan check-list before deciding on a trade, and eventually, there is no need to seek for advices from 'experts'.
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