Rock's Checklist

First, pick a few stocks per sector to trade. Study these stocks and learn their action. Learn their fundamentals. Fundamentals only tell you why to buy not when to buy. Technicals tell you when. And remember, never trust any work that starts with FU. Do your analysis before the market opens or after it closes. Always check for increasing quarterly profit margins and free cash flow (you can get from www.finance.yahoo.com). Check revenues and look for quarterly increasing revenues.

Draw lines where you believe support and resistance are. Draw the stock’s current trend channel, and determine that you are at the bottom of a down or up channel and beginning to turn, or have just turned inside the down channel. I use TDAmeritrade’s StrategyDesk channel drawing tool, it’s easy and pretty accurate. Identify your business plan based on the support and resistance points. Understand your possible gains and losses before you start. Do not wait until you are in the trade, and you are surprised. That lets in emotion.

When the market opens lose your opinions so you don't loose your money. Lose all hope and enthusiasm. Lose all depression. Go in cold. And hard. Determined. If your choices are high in volatility, take Demerol or darvon. Remember the market is like the Queen Mary. It takes a long time to turn or stop.

Going Long Checklist
1. Market trend positive (Positive slope of the SPY channel). Or weekly chart SPY Moving Average positive. The number of stocks trading above their 50 day moving averages must be increasing (stockcharts.com ticker $SPXA50)
2. Sector trend is starting to turn positive (I use Sector ETFs, I posted the list on the excel spread sheet)
3. The target’s daily stochastics at or below 20%. Ideally starting to turn up, with the %D starting to cross over the %K.
4. 15 minute Stochastics at or below 20% and starting to rise
5. 3 minute Stochastics rising
6. MACD Crossing over the signal, or rising.
7. 5-day relative strength at the lows, and starting to turn up. I posted the formula for rel strength before, but if you can’t find it, I’ll post again)
8. Enter the position. Pick your stop-loss. Use 1.5x the 15 minute bar point range, or identify the turning point and set the stop there. Set the stop loss. Be cold and hard. Set the stop loss. Set the stop loss.
9. Identify the W formation with the right hand low higher than the left
10. Look for volume confirmation. When the volume is rising, the price action is being confirmed. If the volume is falling, the price action is not defensible, and tighten your stop.
11. Adjust your stop. Use trailing stops on successful trades that are 1.5 times the 15 minute bar point range for tight stops, and 3 times the 15 minute bar point range for looser reign.
12. Check the SPY buy action at the end of the day. If there is positive buy action, and your stock is up, add. If there is sell action on your stock or on the SPY, then decide to get out. If you choose to stay in and risk everything for an overnight, then don’t sleep, toss and turn, and when you get up in the morning kick the dog.
13. Resist re-entering a position after you’re stopped out. Wait for the next setup, the next opportunity. Remember opportunities are like girlfriends (boyfriends), another will be along in 10 minutes.

Enter the position with 25 shares (depending on your budget, never more than 100 shares). The most money is made on measured moves, not on instant turns and quick hits. When you see a higher High on the W formation, that identifies the position may be increased. Do not add at the higher high point, wait for the 15 minute Stochastics to return to the 20% level, and if the low at that time is a higher low, then add at that turn-around point.

Going Short checklist:
1. Remember everyone is against you. Everyone hates you. Everyone will try to take your money and make shorting as painful as possible. You are fighting the Fed. You are evil. You’re as bad as GS “market makers”.
2. Do all the research you would do for going long. Just look for the opposite: decreasing quarterly revenues, negative free cash flow, etc. Never short strength.
3. The SPY trend must be flat or negative. Do not fight the market trend with a short.
4. In your FUndamental analysis make sure you understand the cash position of the company. With a lot of cash, they can buy their own stock and your caught up in your own shorts.
5. Sector is starting to turn negative.
6. Daily Stochastics are at 80% and have started to turn downward.
7. 15 minute Stochastics at 80% and have started to turn downward.
8. 3 minute Stochastics are falling
9. MACD crossing over or headed down
10. 5 day relative strength at the highs, and beginning to turn down.
11. Enter the position. Pick your buy-back point. Set the buy-back point with a stop-market order.
14. Identify the M formation with the right hand high lower than the left. You may add at this point.
12. Look at the “going long” checklist above, and decide whether or not you will be kicking the dog.

You should develop your own checklist. When you violate a checklist item, you should have a reason for ignoring it, so write down the reason. If there's a failure, then in your failure analysis, you can read your reasoning.

Remember to review successful trades. Look for points where your checklist matches up, and look for position maintenance successes. Keep a notebook and write them down. Review the notebook on sunday afternoon while you're making up to the dog for kicking him.