# Criteria for picking stocks



## r34ztune (8 July 2008)

What is your criteria in order of importance for selecting a particular stock. 
Examples-
1. PE ratio
2. EPS
3. Volumes
4. Trends
5. Company information
ECT ECT
Please keep in point form.


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## white_goodman (9 July 2008)

if it loses my money i pick it lol..........

probelm is my knowledge is in LPT's and i can't exactly invest in them atm


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## strudy (10 July 2008)

1. Adhere to your written down plan for buying and selling shares. I.e. The amount you are going to spend.

Have a stop loss in place (This is the amount you can afford to lose if things go the wrong way. 2% of the total value of your portfolio is a good guideline) 

The % profit you want to make after allowing for brokerage etc.

The time frame you would like. (Not always possible) for the total transaction. Is it short, medium or long term? 

The number of shares you want. (This depends also on your capital constraints)

 Diversify don’t invest just in one area. Spread your risk over different types of companies. So if resources go downwards and you have Banks and Retail in your portfolio the chances of all thee going downwards are very slim.

Unless of course there is a general market crash then every thing goes down. Thank God they are not too common.

2 When I pick a stock one criteria I like is the stock to have the last high in the share price has been higher that the one the day before. I do this for a minimum of three days to five days consecutively.

3 Plenty of liquidity meaning a good volume of shares has exchanged hands recently.

4 Buyers outnumber sellers. If the other way round, the share price will drop downwards for sure.

4 Recent news or rumours of news .i.e. Takeovers, profits etc. Only good news of course.

5 Directors buying shares {not selling} in the last 2 to 3 weeks.

6 The “Trend Lines” show a definite trend upwards. If in doubt don’t trade.

7 A visual look {the old “eye ball test”} at the most recent chart, preferably over the last month’s performance.

 Again if in any doubt drop the share till next time; just add it to watch list.

 I have around 30 to 40 companies currently on my watch list. I whittle them down to around 3 -4 using those basic criteria above.

 It is not a hard a fast criteria, make up some of your own preferences. Mine is just to give you a very basic idea to help you get started. 

When it all boils down to it, there are no guarantees we are just working on the “Probability” of the share price going upwards.

 NB If it is only 50- 50 probability don’t bother this is a share going sideways and you might as well toss a coin because you are now gambling. 

If a share is going downwards I use the probability of 70% of it continuing that way, 20 % chance of going sideways, 10% going upwards.

 The next is probability I use for an “Upwards” moving share price is 70% to continue upwards and 30% probability of either going sideways or downwards.

Remember these are only guidelines; if things don’t go to plan that is when you implement a “stop loss” (see past article if you want to know more on this.)

 This article turned out longer than I expected it to, but if it helps you to make more successful trades then it is all worthwhile. Just remember me when you make your first million.


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## white_goodman (10 July 2008)

strudy said:


> 1. Adhere to your written down plan for buying and selling shares. I.e. The amount you are going to spend.
> 
> Have a stop loss in place (This is the amount you can afford to lose if things go the wrong way. 2% of the total value of your portfolio is a good guideline)
> 
> ...




very helpful... would you say a stop loss on a more speculative stock would be more relaxed say 3-4% or tighter? cause they may be a little more volatile both good and bad...


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## cmh888 (10 July 2008)

I have a 'points system' I use, and will only buy if a company scores 22 or higher out of a possible 26 points. The things I look at are:

* What is the primary interest of the company

* Does the company have any secondary (income generating) interest(s)

* Who are the major competitors (look at peer comparison for market cap)

* What is the company's financial position (I rate it according to equity)

* What is the current social, political and economic climate in relation to what the company does

* Recent and forthcoming announcements

* Current market conditions (both generally and in relation to what drives prices for that particular sector)

* Who are the major shareholders

* What percentage interest does the company have in its projects, and who controls the other portions of the projects

I also usually read what other people are saying and look at the charts.

I have only been doing this for a couple of years but have had some success ticking all of these boxes.


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## professor_frink (10 July 2008)

here's one way


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## tech/a (10 July 2008)

strudy said:


> 1. Adhere to your written down plan for buying and selling shares. I.e. The amount you are going to spend.
> 
> Have a stop loss in place (This is the amount you can afford to lose if things go the wrong way. 2% of the total value of your portfolio is a good guideline)
> 
> ...




If its going up buy it.
If its going down either short it or sell out.
Why complicate things.


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## r34ztune (10 July 2008)

hi strudy some good advice there,
a couple of questions - 
1.alot on the forum suggest "buying into"  a stock on the upswing/trend, is this a day trader technique? 
2.also do you apply this to all stocks whether spec or blue chip, surley you can expect blue chips to move with the market then bounce back up?
3.doesn't anyone here apply the "buy & hold" technique on blue chips at cheap prices?
4. is a stop loss of 2% the average, seems low, and unless you check your stocks daily would be hard to implement.


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## wayneL (10 July 2008)

Red line crosses blue line ==>> Buy

Blue line crosses red line ==>> Sell

That'll be £3,500 thanks.


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## r34ztune (10 July 2008)

tech/a is it really that simple? 
actually 2% stop loss, you would be selling alot of the time, esp in this market, wouldn't transaction costs make it un-viable?


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## wayneL (10 July 2008)

r34ztune said:


> tech/a is it really that simple?
> actually 2% stop loss, you would be selling alot of the time, esp in this market, wouldn't transaction costs make it un-viable?




You don't seem to understand what 2% means.

It's 2% of your total capital, not 2% of the position.

Search "fixed fractional position sizing".


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## AlterEgo (10 July 2008)

tech/a said:


> If its going up buy it.
> If its going down either short it or sell out.
> Why complicate things.




I agree. Keep it simple. I love this quote by Nicolas Darvas:

"My only sound reason for buying a stock is that it is rising in price. If that is happening, no other reason is required. If that is not happening, no other reason is worth considering."


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## michael_selway (10 July 2008)

AlterEgo said:


> I agree. Keep it simple. I love this quote by Nicolas Darvas:
> 
> "My only sound reason for buying a stock is that it is rising in price. If that is happening, no other reason is required. If that is not happening, no other reason is worth considering."




Hm quotes from Warren Buffet:



> *The dumbest reason in the world to buy a stock is because it's going up.* Most people get interested in stocks when everyone else is. The time to get interested is when no one else is. You can't buy what is popular and do well. It's far better to buy a wonderful company at a fair price than a fair company at a wonderful price. Price is what you pay. Value is what you get. For some reason, people take their cues from price action rather than from values. What doesn’t work is when you start doing things that you don't understand or because they worked last week for somebody else. Diversification is a protection against ignorance. It makes very little sense for those who know what they're doing.




thx

MS


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## nomore4s (10 July 2008)

r34ztune said:


> hi strudy some good advice there,
> a couple of questions -
> 1.alot on the forum suggest "buying into"  a stock on the upswing/trend, is this a day trader technique?
> 
> ...




1. Trends happen in all time frames and as such can be traded over all timeframes - it is not only a daytrader technique but a general trading technique.

2. Blue chips can also go down for large periods of time and also go bust/lose money.

3. Depends on your investment goals - eg I hold a portfolio as a long term hold (min 10 years) that is for income (dividends - which is then used to buy more stocks) - I try to save money to add to this portfolio each year during major dips in the market. But the money used is not needed and is part of my retirement plan and is a small part of my total savings. I hardly look at this portfolio, as long as the stocks keep paying a good D/E they stay in the portfolio.

4. I haven't fully read Sturdys post but I think he is refering to 2% of total capital being risked per trade. This for me is too high - I only risk 1%-1.5% of my capital.
eg. Capital = $10,000
Risk of 2% = $200. So total risk per trade is $200
So if you buy XZY for $10.00 and your stop loss is at say $9.00 your risk is $1.00. Max total risk is $200 so you can buy 200 shares ($200/$1.00) - $2000 worth. You also need to take brokerage into account.


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## wayneL (10 July 2008)

AlterEgo said:


> I agree. Keep it simple. I love this quote by Nicolas Darvas:
> 
> "My only sound reason for buying a stock is that it is rising in price. If that is happening, no other reason is required. If that is not happening, no other reason is worth considering."






michael_selway said:


> Hm quotes from Warren Buffet:
> 
> 
> 
> ...




And so we are at cross-purposes once again.

What make sense for a fundamental investor doesn't make sense for a technical trader.... and visa-versa.

... and never the 'twain shall meet.


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## michael_selway (10 July 2008)

r34ztune said:


> What is your criteria in order of importance for selecting a particular stock.
> Examples-
> 1. PE ratio
> 2. EPS
> ...




Hi r34

*Forward EPS/PE & Risk (Industry & Company specific)

Weigh the above with the current (& future) risk free Bank Interest e.g Bank West 8.23% (PE of 12.50)

Then use a bit of T/A (trends), but for entry point only

Now thats a powerful combination* 

thx

MS


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## nomore4s (10 July 2008)

wayneL said:


> Red line crosses blue line ==>> Buy
> 
> Blue line crosses red line ==>> Sell
> 
> That'll be £3,500 thanks.




lol, where do I sign up?

You forgot the fees for the "live data" and the on going support costs required to keep the program up to date and make me feel better when the system starts to fail.:


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## tech/a (11 July 2008)

The Buffet analogy.

When your Buffet and you can buy enough of a company to determine its direction then you can make that analogy and apply it yourself. 



> What doesn’t work is when you start doing things that you don't understand or because they worked last week for somebody else




And there in lies 90% of the truth of the whole quote!


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## Sean K (11 July 2008)

I just buy what LN does.


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## wayneL (11 July 2008)

nomore4s said:


> lol, where do I sign up?
> 
> You forgot the fees for the "live data" and the on going support costs required to keep the program up to date and make me feel better when the system starts to fail.:



SHHHHHHHHHH!

We don't tell them that until they buy the program.


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## Sean K (11 July 2008)

wayneL said:


> SHHHHHHHHHH!
> 
> We don't tell them that until they buy the program.



On what's been said, I'm in! Please send sign up forms. 

I love snake oil.


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## wayneL (11 July 2008)

kennas said:


> On what's been said, I'm in! Please send sign up forms.
> 
> I love snake oil.




Actually, I'm signing up affiliates... Join Canuck-Yankee-Aussie-Pommie Wayne be rich beyond your wildest dreams:


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## AlterEgo (11 July 2008)

michael_selway said:


> Hm quotes from Warren Buffet:
> 
> Quote: The dumbest reason in the world to buy a stock is because it's going up. Most people get interested in stocks when everyone else is. The time to get interested is when no one else is. You can't buy what is popular and do well. It's far better to buy a wonderful company at a fair price than a fair company at a wonderful price. Price is what you pay. Value is what you get. For some reason, people take their cues from price action rather than from values. What doesn’t work is when you start doing things that you don't understand or because they worked last week for somebody else. Diversification is a protection against ignorance. It makes very little sense for those who know what they're doing.
> 
> ...




Ok, let’s take a look at Buffet’s performance. Share price of Berkshire Hathaway BRK.A was $77,250 on 10/7/98 and had increased to $119,250 on 10/7/08. So in the last 10 years his share price has increased on average *5.4% per year*. If that’s the sort of performance you’re trying to emulate, then go for it! What’s a fixed term bank deposit getting these days? 8%?


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## Bloveld (11 July 2008)

AlterEgo said:


> Ok, let’s take a look at Buffet’s performance. Share price of Berkshire Hathaway BRK.A was $77,250 on 10/7/98 and had increased to $119,250 on 10/7/08. So in the last 10 years his share price has increased on average *5.4% per year*. If that’s the sort of performance you’re trying to emulate, then go for it! What’s a fixed term bank deposit getting these days? 8%?




Are you planning to be the richest guy on the planet anytime soon?


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## white_goodman (11 July 2008)

AlterEgo said:


> Ok, let’s take a look at Buffet’s performance. Share price of Berkshire Hathaway BRK.A was $77,250 on 10/7/98 and had increased to $119,250 on 10/7/08. So in the last 10 years his share price has increased on average *5.4% per year*. If that’s the sort of performance you’re trying to emulate, then go for it! What’s a fixed term bank deposit getting these days? 8%?





i dont know who buffet is but all i keep picturing is the UFC and boxing announcers


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## stargazer (11 July 2008)

Hi



> strudy
> Buyers outnumber sellers. If the other way round, the share price will drop downwards for sure




Just on this i notice some standard platforms go ten deep in the market depth is this enough take the BUY SELL numbers as a gauge.

Market depth on more pro orientated go alot deeper.

Cheers
SG


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## AlterEgo (11 July 2008)

Bloveld said:


> Are you planning to be the richest guy on the planet anytime soon?




What’s that got to do with anything? Buffet took a whole lifetime to accumulate that sort of capital and I’m supposed to equal that in the next few weeks I suppose??? Get real!

The point I’m trying to make is that this “value” approach to investing is never going to produce the sort of returns that active traders can get. The shorter your trading timeframe is, the higher the returns you can achieve. And for short term trading, fundamental criteria is virtually irrelevant. Why take the long, slow and steady way to your first million, when there are other ways that could potentially get you there much quicker, and has worked for many, many other traders?


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## wayneL (11 July 2008)

AlterEgo said:


> What’s that got to do with anything? Buffet took a whole lifetime to accumulate that sort of capital and I’m supposed to equal that in the next few weeks I suppose??? Get real!
> 
> The point I’m trying to make is that this “value” approach to investing is never going to produce the sort of returns that active traders can get. The shorter your trading timeframe is, the higher the returns you can achieve. And for short term trading, fundamental criteria is virtually irrelevant. Why take the long, slow and steady way to your first million, when there are other ways that could potentially get you there much quicker, and has worked for many, many other traders?



Buffett himself admitted that someone with less than a million in capital could easily outperform BH.

Thousands of small time (and some not so small time) private traders do it all the time and by a substantial margin.

Things change when you're managing huge lumps of capital.


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## Julia (11 July 2008)

wayneL said:


> Buffett himself admitted that someone with less than a million in capital could easily outperform BH.
> 
> Thousands of small time (and some not so small time) private traders do it all the time and by a substantial margin.
> 
> Things change when you're managing huge lumps of capital.




I think there also exists some level of confusion about 'the Buffet approach'.
Seems to sometimes be translated into holding onto falling stocks because once they were winners, the implication being they will eventually rise again from the ashes.  Maybe they will.  But maybe they won't.  Unnecessary risk of capital.


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## AlterEgo (11 July 2008)

wayneL said:


> Things change when you're managing huge lumps of capital.




Yes, I don't disagree. But I still believe that anyone using a long-term 'buy and hold' type approach will never produce the same sort of returns that a skillful shorter-term trader could achieve.


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## wayneL (11 July 2008)

AlterEgo said:


> Yes, I don't disagree. But I still believe that anyone using a long-term 'buy and hold' type approach will never produce the same sort of returns that a skillful shorter-term trader could achieve.




Yes, we are in absolute agreeance(?) there.


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## AlterEgo (11 July 2008)

Julia said:


> I think there also exists some level of confusion about 'the Buffet approach'.
> Seems to sometimes be translated into holding onto falling stocks because once they were winners, the implication being they will eventually rise again from the ashes.  Maybe they will.  But maybe they won't.  Unnecessary risk of capital.




But didn't Buffet do just that?! That approach would be suicide for you or I to do, but the difference with Buffet is that he could buy out the entire company, or at least a controlling interest in it, and then put changes in place to turn it's fortunes around. You or I wouldn't have the capital to be able to do that, and wouldn't have Buffet's brain for business, so I don't understand why so many people try to follow his methods when they don't have the capital or business skills to be able to do so.


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## michael_selway (12 July 2008)

AlterEgo said:


> Ok, let’s take a look at Buffet’s performance. Share price of Berkshire Hathaway BRK.A was $77,250 on 10/7/98 and had increased to $119,250 on 10/7/08. So in the last 10 years his share price has increased on average *5.4% per year*. If that’s the sort of performance you’re trying to emulate, then go for it! What’s a fixed term bank deposit getting these days? 8%?




8% is only the current rate of interest, during that 10 years it may have been lower etc

You have to look at risks as well, at least he didnt lose any money in that 10 years. Basically he trades with minimal risk thats the the key to his success

trading on charts is high risk imo and thats where the problem

Would you prefer your kids to trade all day or buy stocks long term?

thx

MS


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## AlterEgo (12 July 2008)

michael_selway said:


> trading on charts is high risk imo and thats where the problem




Well we'll have to agree to disagree on that point. Trading on charts CAN be risky if you don't know what you're doing, or don't manage the risks properly, but it doesn't have to be.



michael_selway said:


> Would you prefer your kids to trade all day or buy stocks long term?




Well for starters, you don't need to day-trade to profit from charts. My average trade length is about 2 weeks, although I have held a couple for up to 2 months  in the past year.

IMHO, short-term is LESS risky than long-term. It's much easier to anticipate where the stock price may be 1 month from now than it is to try to anticipate where it may be 5 or 10 years in to the future. The longer you hold a stock for, the more time you are exposed to any negative news that may be released, profit downgrades, etc. In that 5 or 10 year period the nature of the business may change, a competitor may release a better product that makes your companies product obsolete, interest rate rises or foreign currency exchange movements may reduce your companies profits, etc, etc. The longer you hold a stock for, the more things can go wrong, so rather than REDUCING risk, I believe you are actually INCREASING risk the longer you hold it for. That my opinion anyway, I'm sure many will disagree.


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## Trembling Hand (12 July 2008)

michael_selway said:


> trading on charts is high risk imo and thats where the problem
> 
> Would you prefer your kids to trade all day or buy stocks long term?



Without a doubt DAY TRADE. If you can do that successfully all the rest can be rolled out at the appropriate time. 

What is risky is trying to make money with one approach that is not suited to the market. Day trading there is always an opportunity.



stargazer said:


> Just on this i notice some standard platforms go ten deep in the market depth is this enough take the BUY SELL numbers as a gauge.
> 
> Market depth on more pro orientated go alot deeper.



Market depth is useless as a gauge of buying and selling. What is important is what is hitting the market not what is sitting in the order book.


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## Bloveld (12 July 2008)

I still want to know how a guy can go from nothing to 60 odd billion if he cant even achieve bank interest returns.


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## white_goodman (13 July 2008)

Bloveld said:


> I still want to know how a guy can go from nothing to 60 odd billion if he cant even achieve bank interest returns.




a little known fact that he is the number one drug baron of south america


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## cordelia (17 July 2008)

I look for stocks that have been beaten down and watch them until they appear to have found support. They have to have plenty of volume ..not thinly traded. There's nothing to guarantee they won't keep going lower so I wait for a higher high  and a lower low and place my order at the lowest low or just above.  If I get filled well and good. . Patience can be very rewarding.  I watch the stocks I trade for some time before I jump in...

Depending what happens during the session I get filled is what determines where I put my stop. 

Two things I do is only place an intial order for half the position I want to fill. If it goes my way I add to it. Second thing I do is as soon as I get filled I place my stop and I have a target at which I am going to sell before I enter a position.

I f my stop gets triggered I haven't risked too much. If the stock goes sideways for too long I close out the position.


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## wayneL (17 July 2008)

Bloveld said:


> I still want to know how a guy can go from nothing to 60 odd billion if he cant even achieve bank interest returns.




Buy using the same principle that most wealthy people use:

OPM

(*O*ther *P*eoples *M*oney)

Folks seems to believe Buffett started with the $10.95 in his piggy bank be earned as a paper boy and turned that into 60 billion.

Not so.

He started with OPM... lots of it.


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## cordelia (17 July 2008)

wayneL said:


> Buy using the same principle that most wealthy people use:
> 
> OPM
> 
> ...





yes think alan bond......


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## johenmo (19 July 2008)

r34ztune said:


> What is your criteria in order of importance for selecting a particular stock.
> Examples-
> 1. PE ratio
> 2. EPS
> ...




I'm interested in the above, not a debate on Buffet (though that's good in another thread!).

I don't have an order of importance, and I'm looking to buy and hold for a while.  I'd have to say the following is the "primary" evaluation, then look at charts/price (more TA, which I'm still learning):

Debt/Equity
ROE
PE & PEG
CR
Int Cover
EPS growth
sentiment/rumour/ASF/external influences.....this point is that even if the rest is looking good, if people don't want it then I become wary.

There are a lot of companies that have good numbers above yet the price is still falling - subprime crisis, etc etc.  

Anyone want to suport or destroy the above? LOL


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## mattyhammer (26 July 2008)

AlterEgo said:


> Yes, I don't disagree. But I still believe that anyone using a long-term 'buy and hold' type approach will never produce the same sort of returns that a skillful shorter-term trader could achieve.




As a newbie trader who has stuck his toe in the big blue and had it bitten off, how do I become a "skillful shorter-term trader' as suggested above???? There is so much lingo involved with trading and so many differing opinions on how to become successful at trading that I really don't know where to go. I hear so many things that say to read P/E ratios n calculate the capital of the company. I have no idea what all that is and how to analyse it. So what I'm asking is how on earth do I get myself out of the hole I have dug myself with my current level of knowledge without considerably losing too much more. I'm willing to learn, just not sure where to begin.....


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## Aussiest (26 July 2008)

Read Louise Bedford's _Trading Secrets_.


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## r34ztune (27 July 2008)

I would agree the potential to more earn day trading however would it be fair to say the potential risks are much higher? Also criteria for picking stocks is different for day traders as opposed to "buy & hold" approach?


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