With New Year’s fast approaching, people are working on nailing down their resolutions for 2010. But while most self-improvement lists focus on losing 20 pounds or quitting smoking, I’m here today to fill you in on four must-have resolutions for your portfolio. That’s right – resolutions don’t have to stop at your investments…

To invest successfully in today’s market, you must have a trading plan. And what better time is there to form good trading habits than the New Year?

The four resolutions below will help you craft your own plan – and following them could be the key to make 2010 the year your portfolio takes off.

Resolution 1: I Will Create a Plan Based on Who I Am As an Investor

Before you can create a plan, you must determine what kind of investor you are. This is an absolute must!

What are you trying to accomplish with your investment dollars?

I already said that in today’s market, you must have a plan.  But it can’t just be any old plan.  It must be one that is based on who you are as an investor or trader and what you are trying to accomplish.  So are you:

1. An investor?
2. A trader?
3. A long only investor?
4. A short only investor?
5. A combination of long and short?

Why are these questions so important? Well, if you’re long only, then in times of downtrends, you must be prepared to sit in cash or face some difficult times with your investments.  If you’re short only, then in times of uptrends, you too will have to sit in cash or face difficulty.

You’ve really “arrived” when you get to the point where market direction doesn’t matter.  Your plan should take into account both sides of the coin.  You should no longer have to ask whether the market’s going higher or lower.

When you create your plan, take out a piece of paper and set your financial goals for your portfolio, write down the investment strategies you’re going to use to get there, and write down what you need to specifically focus on.

Resolution 2: I Will Trade What I See, Not What I Hear, Think, or Fear

One of my favorite pieces of trading advice is: Trade what you see, not what you think, hear or fear.  This means turning off CNBC and staying focused on understanding what kind of chart patterns make for successful investments and to have the confidence to pull the strings when they trigger.

For us, we look at three types of chart patterns:

1. Uptrend patterns
2. Downtrend patterns
3. Changes in trends patterns

And that’s all that a trader should look for.  As traders, we don’t care what XZY analyst said about a stock, what Cramer had to say in last night’s Lightning Round, or if we didn’t like the service we got at this company’s store.  None of that matters.  All that matters is what the chart is telling us and what we do as a result.

Resolution 3: I Understand It’s a Market of Stocks, Not a Stock Market

How do you make money consistently month over month regardless of market direction?  How do you make money being long in a down market?

The answer is simple.  It’s a market of stocks, not a stock market.  Like I said in Resolution #1, market direction shouldn’t matter.  All that matters is finding stocks that have completed set-ups ideal for significant gains and doing what the chart tells you.

Even in the most raging bull market, a sector or two may suddenly fall out of favor and then we’ll start seeing topping signs on the charts of the industry’s leading stocks.  This means it’s time to go short — even though the overall market is going up.

Resolution 4: Before I Invest, I Know My Stop Loss and My Exit Profit Point

I don’t invest in anything without looking at the chart and determining my stop loss and the point I will exit with a profit. You shouldn’t either…

For example, I have a simple rule:  Buy at support and take profits at resistance.  Before I make a trade, I look at the chart to ensure that I’m picking up shares at support or support is within 5-10% of my buy point.  There are patterns out there everyday that allow you to get in at the lowest point possible where your downside risk is minimal.

I also look to see where the stock may encounter resistance and make sure we know what that point is and that it is far enough away from our buy point for us to reap a profit that makes the capital risk worthwhile.  If the stock is in new high territory, I’ll look to take profits, or a portion of my profits.

When it comes to trading, I rarely try to hit a grand slam.  The key is to hit singles and then move on and hit another single.  That’s how to achieve consistent profits with little risk.  And you do that by knowing up front where your exit point is.

Having a plan, keeping it simple, understanding charts and using the charts to buy right and sell with a profit avoids making mistakes based on emotion, greed or misinformation.

Have a happy New Year, I’ll see you in 2010…

Sincerely,
David Grandey
AllAboutTrends.net

December 29, 2009

David Grandey

David Grandey is the founder of All About Trends, an email newsletter service revealing stocks in ideal set-ups offering potential significant short-term gains.  A successful canslim-based stock market investor for the past 10 years, he has worked for Meriwest Credit Union Silicon Valley Bank, helping to establish brand awareness and credibility through feature editorial coverage in leading national and local news media.

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