Introduction 1
C H A P T E R 1
Building a Foundation: Point and Figure Basics 9
Why You Should Combine Technical with Fundamental
Analysis 10
Why We Use Point and Figure Charts 11
Point and Figure Chart Basics 13
Point and Figure Tips 15
Point and Figure Chart Patterns 20
Adjusting the Box Size on a Point and Figure Chart 21
The Bullish Percent Concept 25
C H A P T E R 2
Market Psychology 31
Finding a Discipline 32
Common Investor Mistakes 33
Ten Ways to Sabotage Your Portfolio 35
Our Adaptation of Baruch’s Rules 38
Practice, Practice, and Then Practice Some More 39
Why Work with a Broker or Money Manager? 41
Decision Doesn’t Dictate Outcome—Use the Tools Properly:
That’s the Best You Can Do 42
Magazine Covers 43
A Diary of Lessons 45
CONTENTS
C H A P T E R 3
Market and Sector Applications 49
The 80 Percent–20 Percent Phenomenon 50
Why the S&P 500 Is Hard to Beat 52
Bogey Fever 53
Do You Know Your QQQs? 54
Using SPDRs and Other Products to Diversify 60
Market vs. Sector Timing 61
Which Side Are You On?: Sector Bullish Percent Charts 63
It Feels Like the Bullish Percent Should Be at 10 Percent! 68
Sector Relative Strength 72
It’s an Art, Not a Science 75
Market Leadership 78
Dow Jones 20 Bond Average 80
C H A P T E R 4
Essentials of Stock Selection 87
Four Steps for Initiating New Positions 88
Stock Evaluation Checklist: Evaluating Technical Pros and
Cons 89
Bullish Support Line 91
Bearish Resistance Line 91
Relative Strength: Motorboat vs. Rowboat 96
Good Stocks Stand Out in Market Declines 97
Best in Class: Using Peer Relative Strength to Buy the Best
Stock in a Given Sector 99
Compare Your Stocks to the Market—Especially Market
Leaders 100
Buying on a Pullback 101
Momentum 102
Using Pre- and Post-Split Charts 106
Insider Buying vs. Insider Selling 110
The Quality of the Merchandise Is Important 111
C H A P T E R 5
Risk/Reward Principles 113
A Free Lunch—Not: Higher Returns Come with Higher Risk 114
Evaluating Risk/Reward When Initiating New Positions 115
Catching a Falling Knife 119
Using Options as a Low-Risk Way to Initiate Positions 121
Reducing Risk in a Stock—Selling It and Buying a Call 123
The Mathematics of Losses 124
Stock Insurance—Purchasing Puts to Protect Your Stocks 127
C H A P T E R 6
Short-Term Trading Techniques 131
Tactics for the Short-Term Trader 132
Bulls Make Money, Bears Make Money, But Pigs Make
Nothing 133
Long Tail of Os Down: A Trading Technique 134
High Short Interest 135
The Selling Climax 136
Spin-offs 137
When the High-Low Reverses up from below 10 Percent 138
Strategy for Option Expiration 139
Guideline for Selling Short 141
C H A P T E R 7
Managing Your Investment 145
The Tortoise and the Hare 146
Two Heads Are Better Than One 147
Keeping Turnover to a Minimum 149
Let Profits Run, Not Losses 150
Benefits of Position Sizing for Traders: Percent Risk Method 152
The Hardest Decision Is When to Sell: Taking Profits, Cutting
Your Losses, Stop Points, and Trimming 156
Buy on Rumor, Sell on News: Stick to the Reason You Bought the
Stock 158
How Good Are Your Defensive Skills? 159
Hedging Your Portfolio with Index Options 161
SOURCE: BLOOMBERG PRESS
No Free Lunch: Selling Calls against Your Not-For-Sale Stock 163
Augmented Writing 164
C H A P T E R 8
Understanding Options Strategies 167
The Key to Understanding Options 168
Definition of a Call and Put 169
The Options Delta: An Important Term to Know 170
Call Guidelines 171
More Call Guidelines 173
Put Guidelines 175
More Put Guidelines 176
Overleveraging an Options Position 178
When Investing in Options, Buy Time 179
An Option Trader’s Lesson from the Gym 181
Puts as Insurance 182
Uncovered Puts: Be Sure You Can Pay for Them 184
Buy, Sell, Hold, or Hedge? 186
Selecting the Right Covered Write 188
Overwriting Long Positions 189
C H A P T E R 9
Other Investment Tips 193
The Job of the Fundamental Analyst 194
Being the Inventory Manager 196
When Old Meets New: An Alternative to the Dogs of the
Dow 198
Investing in Dividend Re-Investment Plans (DRIPs) 202
Cocktail Party Indicator 203
All I Needed to Know I Learned from Noah’s Ark 206
To Be Successful, Continually Educate Yourself 210
Glossary 212
Index 216