Stock Selection Criteria To Enhance Returns And Decrease Risk In Stock Markets

Reading unofficial biography of George Soros, arguably one of the best investor/speculator of all times of stock markets just reaffirmed my belief that being contrarian and disciplined can reap rich rewards in stock markets. Start using short side of market when you have sufficient funds in your kitty.

The buying strategy which works best for me today is –
1.        Overall picture, interest rates and wave patterns in monthly, weekly and daily charts.
2.        Stock selection criteria.
3.        Index level entry points for stocks.
4.        Stock level entry points for stocks.
5.        Adding in case of further downturn.

Sequential steps and method to enter –
1.Identify Elliot wave of monthly (M), weekly (W) and daily (D) candlestick chart for index. Don’t get caught in wrong monthly and weekly waves. The Elliot wave calculation can be wrong many times but one can have some idea of targets and expectations.

2. Identify oversold situation in monthly, weekly and daily technical charts for index by –

i. W%R 14 less than -70.

ii. CCI 14 less than -50.

iii. MACD divergence 26,12,9 negative 50% range.

iv. Bollinger bands 20, 2 below the central line EMA 20.

Minimum criteria is weekly oversold, best is monthly oversold.
1. Make a list of stocks of top 100 stocks of index and rank them on the basis of P/E, P/B, ROA%, EPS CAGR%4, 1 YOY% returns, and D/E ratio. Sum of all ranks + sum of P/E, P/B, ROA ranks. Take the best 10 different sector stocks which have good recent Quarterly results.
2. Apply 1, 2 to selected stocks and enter those stocks which fulfill the criteria. Buy minimum 5 and maximum 8 stocks.
3. Enter 5% of portfolio value at 8% index correction from monthly/weekly top. If starting afresh invest 30% of total amount to be invested at 8% index correction.
4. Enter 8% of portfolio value at 13% index correction from monthly/ weekly top. Invest 40% of total amount to be invested at 13% index correction.
5. Enter 13% of portfolio value at 21% index correction from monthly/ weekly top. Invest remaining 30% of total amount to be invested at 21% index correction.
6. If correction keeps on continuing just check your waves, be patient and give time.
We will discuss the money management, profit booking, use of performance cycles and hedging strategies in further posts.

| | Print This! | No comments

Do you like this post?