TOP 23 TRADING RULES OF WILLIAN J O’NEIL

TOP 23 TRADING RULES OF WILLIAN J O’NEIL

1. Don’t buy cheap stocks. Buy Nasdaq stocks mainly selling between $15 and $300 a
share and NYSE stocks from $20 to $300 a share. Avoid the junk pile.
2. Buy growth stocks that show each of the last three years annual earnings per share up
at least 25% and the next year’s consensus earnings estimate up 25% or more. Most
growth stocks should also have annual cash flow of 20% or more above EPS.
3. Make sure the last two or three quarters earnings per share are up a huge amount.
Look for a minimum of 25% to 30%. In bull markets, look for EPS up 40% to 500%
(The higher, the better).
4. See that each of the last three quarter’s sales are accelerating in their percentage
increases, or the last quarter’s sales are up at least 25%.

5. Buy stocks with a return on equity of 17% or more. The best companies will show a
return on equity of 25% to 50%.

6. Make sure the recent quarterly after-tax profit margins are improving and near the
stock’s peak after-tax margins.

7. Most stocks should be in the top five or six broad industry sectors.

8. Don’t buy a stock because of its dividend or P/E ratio. Buy it because it’s the number
one company in its particular field in terms of earnings and sales growth, ROE, profit
margins, and product superiority.

9. Buy stocks with relative strength of 85 or higher.

10. Any size capitalization will do, but the majority of your stocks should trade an average
daily volume of several hundred thousand shares or more.

11. Learn to read charts and recognize proper bases and exact buy points. Use daily and
weekly charts to materially improve your stock selection and timing. Buy stocks are
they initially breakout out of sound and proper bases with volume for the day 50% or
more above normal trading volume.

12. Carefully average up, not down, and cut every single loss when it is 7% or 8% below
your purchase price with absolutely no exception.

13. Write out your sell rules that show when you will sell and nail down a profit in your
stock.

14. Make sure your stock has at least one or two better-performing mutual funds who
have bought it in the last reporting period. You want your stocks to have increasing
institutional sponsorship over the last several quarters.

15. The company should have an excellent new product or service that is selling well. It
should also have a big market for its product and the opportunity for repeat sales.

16. The general market should be in an uptrend and either favoring small or big cap
companies.

17. The stock should have ownership by top management..

18. Look for a “new America” entrepreneurial company rather than laggard, “old
America” companies.

19. Forget your pride and ego; the market doesn’t know or care what you think. No
matter how smart you think you are, the market is always smarter. A high IQ and a
master’s degree are not guarantees of market success. Your ego could cost you a lot
of money. Don’t argue with the market, and never try to prove you’re right and the
market is wrong.

20. Watch for companies that have recently announced they are buying back 5% to 10%
or more of their common stock. Find out if there is new management in the company
and where it came from.

21. Don’t try to buy a stock at the bottom or on the way down in price, and don’t average
down (If you buy at $40, don’t buy more if it goes to $35 or $30).

22. If the new appear to be bad but the market yawns, you can feel more positive. The
tape is telling you that the underlying market may be stronger than many believe. On
the other hand, if highly positive news hits the market and stocks give ground
slightly, the tape analyst might conclude the underpinnings of the market are weaker
than previously believed.

23. 37% of a stock’s price movement is directly tied to the performance of the industry
group the stock is in. Another 12% is due to strength in it’s overall sector. Therefore,
half of a stock’s move is due to the strength of its respective group.

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