Stock Trading Steps Step 1: Determine the stage of the economic cycle and sector rotation bya.

Checking Fed FOMC interest rates (high interest rates are bad) b. Read the Beige Book to observe Fed summaries. www.federalreserve.gov/FOMC/BeigeBook/2008 c. Observe "money supply" www.federalreserve.gov/releases/h6/current d. Look for the risk of inflation through: GDP http://bea.gov 8:30 AM last business day of January, April, July, October. Consumer Price Index (CPI) is a basket of goods and services. Anything over a 1 to 2 percent increase is a sign of inflation. www.bls.gov/cpi/home.htm 8:30 AM, 15th of each month. Producer Price Index (PPI) is yet another basket, this one of indexes www.bls.gov/ppi 8:30, 13th of each month Retail Sales Data www.census.gov/marts/www/marts.html 8:30 AM, 12th of each month Employment Situation Summary is an indicator of joblessness and can indicate recession and inflation www.bls.gov 8:30, 1st Friday of each month.

Employment Cost Index www.bls.gov last day of January, April, July, October Consumer Confidence Index (CCI) helps the Fed determine interest rates. Low interest could mean lower interest rates www.conferenceboard.org/economics/consumerconfidence.cfm 10 AM last Tuesday of each month. e. Track business activity National Assocation of Purchasing Managers report (NAPM) www.ism.ws/ISMReport/index.cfm 10 AM 1st business day of each month Durable Goods Orders www.census.gov/indicator/www/m3/index.html Housing Starts And Building Permits http://www.census.gov/construction/bps/ http://www.census.gov/manufacturing/cir/index.html Step 2: Use Fundamental Analysis througha. Checking the income statement, cash flow, and balance sheet at http://www.sec.gov/edgar/searchedgar/companysear ch.html b. Using ratios to determine profitability by comparing to other companies in the same industry: Gross Margin Ratio = gross profit / Net sales

Interest Coverage Ratio = EBIT / interest expenses Step 3: Read Bar Charts for specific trends a. Be able to identify bullish bars, bearish bars, bullish reversals and bearish reversals b. Identify range bound stock patterns c. Use support and resistance levels to identify transitions. When you see a break out, buy! Increased trading volume is a strong indicator that stresses the need to buy during a transition. d. Cup and saucer patterns, and double bottoms also present opportunities to buy and make a profit. e. A steadily rising or falling stock is a trending stock. It either has higher intermittent highs with higher intermittent lows, or lower highs and lower lows. f. The time range over which you view data defines what type of trader you are: day, swing, or position. g. Draw trends lines to help show support. Draw from right to left so that you are forced to compensate for updated data. h. A channel (formed by top channel line and bottom channel line), can help you determine whether to enter or exit a trading position. i. Various types of price gaps in bar charts can

further help to identify market conditions and better enter and exit trading positions. Common gap (small price differentials that do not break support or resistance levels). Breakout gap (previously mentioned). Continuation gap (also known as a runaway or acceleration gap) are the gaps confirming an uptrend or downtrend. Exhaustion gaps (which really can't be identified until the even has occurred) follow strong trends and sometime precede reversal patterns, in which case they become a: Island gap: An unusual high or low (typically associated with high trading volume) that is followed by an uptrend or downtrend. Flags and Pennants: Areas of consolidation, one in which the resistance and support lines converge, and one in which the R and S lines are parallel. A retracement occurs when a stock revisits recent price ranges. 3 and 5 steps retracements can indicate that a breakout is faltering prematurely, or they can be harmless if the prevailing trend continues onward. Remember, breakouts are THE STRONGEST INDICATORS, and they give you a decent percentage advange over the casino, so to speak. They are most

effective when they occur above or below support and resistance lines, respectively. Bull traps occur when a trading signal causes you to buy, but then the signal fails, and ultimately the price falls below the predominat trading range. Bear traps occur when you short a position, but the signal fails and the price rises back into the trading range and ultimately enters a bullish trend. A filled gap occurs when a trading signal fails and the price returns to previous levels and reverses the expected trend. Be sure to thoroughly research underlying economic and business factors when reversing your position. Step 4: Use Indicators and Oscillators Simple Moving Average (SMA): (P1 + P2 + P3... PN) / N = SMA Exponential Moving Average (EMA): (Today's Price x K) + (Yesterday's EMA x (1 - K)) = Today's EMA Buy when the moving average slopes upward and the closing price crosses above the moving average. Close the position when the price closes below the moving average. Sell short when the moving average slopes downward and the closing price crosses below the moving average.

Close the short position when the price closes above the moving average. Buying on a pullback - a moving average acts as support in bullish trends and as resistance in bearish situations. If you've taken a long or short position that is following the trend, when the price drops to the MA use it as another entry point. Remember, the point is to win more than you lose. Experiment to find the most successful strategy. 50 day MA is a good time frame for an established trend to signal exit positions. If economic factors indicate a near future reversal, tighten the frame. Stochastic Oscillator indicates momentum and varies between zero and 100 percent. When it moves above 20% (the oversold level), you buy. When it moves below 80% (the overbought condition), you sell, although the 80% indication is not nearly as accurately indicative as the 20%. Moving Average Convergence Divergence Indicator (MACD) is a trend following momentum indicator. Relative Strength compares a stock against an index/industry. Step 5: Be Professional through Money Management Set definitive entry and exit points, adhere ruthlessly to your exit points, set trailing stops, and act promptly when the trend ends.

Treat your trading ventures like a business; you have costs and investory. When you lose, don't hesitate to admit you were wrong and get the hell out. Protect your principal. Manage your stock like a clothing retailer would manage his inventory. Sell when the breakout fails and the price falls below the original resistance line. If you are more tolerant of a potential monetary loss, then sell when the price drops to the midpoint betweeen the original support and resistance lines.