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Fundamental Analysis and Position Trading: Evolution of a Trader


The series Evolution of a Trader explores four trading styles that people use when learning to invest in the stock market. Often, beginners enter the stock market by

  • 1. Buying and holding on to a stock. That works well until a bear market begins. Then they try
  • 2. Position trading. This seeks to exit positions before a significant trend change occurs.
  • 3. Swing trading follows when traders try to catch short-term swings. Finally, people try
  • 4. Day trading by completing their trades in a single day.

This series takes a detailed look at each of the four styles by offering numerous tips, sharing discoveries, and discussing specific trading techniques to help the reader be successful as they journey through each style.

The first book, Trading Basics, takes an in-depth look at money management, stops, support, and resistance, and offers dozens of tips every trader should know.

The second book, Fundamental Analysis and Position Trading, explains value investing and tests fundamental factors, such as book value, price-to-earnings, and price-to-sales ratios, to see how important they are to stock selection and performance. Chapters such as "How to Double Your Money," "Finding 10-Baggers," and "Trading 10-Baggers" put the fundamentals to work. Position trading introduces market timing to help remove the risk of buying and holding a stock for years.

The third book in the series, Swing and Day Trading, explains how to use chart patterns to swing and day trade. It reviews the basics, including the home office setup and the cost of day trading, and drills down into specific trading strategies such as the opening range breakout and the opening gap setup. It introduces new research on major reversal times and the time most likely to set the day's high and low. That is valuable information to a day trader.

Whether you are a novice who has never purchased a stock but wants to, or a professional money manager, these books are a necessary addition to any market enthusiast's bookshelf.

THOMAS N. BULKOWSKI is a successful investor with thirty years of experience in the stock market. He is also the author of the Wiley titles, Encyclopedia of Candlestick Charts, Encyclopedia of Chart Patterns, Getting Started in Chart Patterns, Trading Classic Chart Patterns, and Visual Guide to Chart Patterns. Bulkowski is also a contributor to Active Trader, Technical Analysis of Stocks & Commodities, and other publications worldwide. Before earning enough from his investments to retire from his day job at age 36, Bulkowski was a hardware design engineer with Raytheon and a senior software engineer for Tandy Corporation.



Chapter 1 Introduction to Buy-and-Hold

What is Buy-and-Hold?

Who Should Buy-and-Hold?

My Numbers: Background and Terms

Now What?

Chapter 2 Stock Selection

What Comes After Large Price Moves?

Myth: Stocks that Drop Least in Bear Market then Soar

Stock Selection the Easy Way

Two Tips for Stock Selection

Buy Fallen Angels

What Chart Patterns Appear Before Mergers and Buyouts?

What Are Insiders Doing?

Chapter 3 Book Value

Book Value Defined

Value Assets Properly

Investing Using Book Value

When is Book Value Important?

The Value of Hidden Assets

Limits of Book Value

Buybacks Lower Book Value

Historical Research

Price to Book Value: A Good Measure

Small Caps: Best Choice

Low Stock Price Rules!

Book Value and Return on Equity

What is Best Price to Book Value?

Combinations and Performance

Trading Strategy: Beating the Dow

The 8 Stock Setup

Hold Time for Best Results

Chapter 4 Capital Spending

The Holy Grail? Decreasing Capital Spending

Capital Spending Trends versus Performance

Frequency Distribution

Performance by Market Cap

Chapter 5 Cash Flow

Historical Research Review

Cooking the Books

The Numbers

Is Increasing Cash Flow Good?

Performance by Market Cap

Chapter 6 Dividends

Stock Dividends: An Explanation

Historical Research Review

High Yield, High Performance?

Testing: Yield and Payout Ratio

Which is Best: Dividends or No Dividends?

Surprise: Dividend Cuts Work!

When Disaster Strikes

Performance by Market Cap

Chapter 7 Long Term Debt

The Numbers

Is Debt Good?

Sinking Ship: Taking on Debt

Debt by Market Capitalization

Chapter 8 Price to Earnings Ratio

History Lesson

Do Low P/E Stocks Outperform?

P/E Trends Down: Good or Bad?

Price and Earnings Combinations: Yawn

Buy Small Caps with Low P/E

High P/E. Time to Sell?

Three P/E Tips

Chapter 9 Price to Sales Ratio

Good Benchmark: PSRs Below 1.0

PSR Trend: Down is Best

Small Caps, Small PSRs Rule!

Checklist: PSRs by Industry

Chapter 10 Return on Shareholders’ Equity

Low Roe Stocks Outperform. Why?

ROE Trend Over Time: Yawn

ROE Performance by Market Capitalization

Chapter 11 Shares Outstanding

Performance versus Shares Outstanding

Event Pattern: Dutch Auction Tender Offers

Should You Sell?

Sell at What Price?

Event Pattern: Common Stock Offerings

Performance and Market Capitalization

Chapter 12 Fundamental Analysis Summary

Performance Rank: One-Year Hold

Performance Rank: Three-Year Hold

Performance Rank: Five-Year Hold

Chapter 13 How to Double Your Money

How Long to Double?

What is the Best Buy Price?

Which Market Caps Do Best?

Focus on Fundamentals: Which are Best?

Warning: Losses Ahead. What You Need to Know

Testing the Setup

Chapter 14 Finding 10-Baggers

How Long to 10x?

What is Highest Starting Price?

What Happens the First Year?

Rising Over Time: How Fast?

10-Baggers by Market Cap

Fundamental Ratios Common to 10-Baggers

Industries Most Likely to Make 10-Baggers

The Most Popular Years for 10-Baggers

Surprising Findings about 10-Bagger Losses

Backward Testing

Chapter 15 Trading 10-Baggers

10-Bagger Birth

Life of a 10-Bagger

10-Bagger Death

Chart Patterns in 10-Baggers

Chapter 16 Selling Buy-and-Hold

The Weinstein Setup

Example: The Southwest Airlines Trade

Example: Savient Pharmaceuticals

1-2-3 Trend Change for Down Trends

1-2-3 Trend Change for Up Trends

The Cloudbank Setup

Using Trailing Stops to Sell

Timely Trendline Exits

Can Moving Averages Help?

Follow Insider Transactions

Selling: Two Ratio Tips

Selling Down From a High

Chapter 17 Fundamentals: What I Use

Two Book Value Tips

Do Not Get Singed by Burn Rate

Drop Capital Spending!

Current Ratio 2.0

Prospecting for Growth Using Dividends

Rising Earnings, Net Profit

P/E Ratio versus Industry

Litigation: Stop Pissing People Off!

Avoid Too Much Long Term Debt

Market Capitalization: Big Returns by Going Small

Research Spending

Sales? Think Money

Price to Sales Ratio: What About Debt?

Stock Price: 5 to 20

Volume: Thin Ice Ahead!

Chapter 18 Introduction to Position Trading

What is Position Trading?

Who Should Position Trade and Why?

What Position Trading Will Not Do

Example Position Trade

Chapter 19 Getting Started in Position Trading

Check the News or Lose!

Trend? What Trend?

Trade with the Primary Trend

Take Your Pick: Bottom Fishing or Momentum?

What is Market Influence on Stocks?

What Chart Patterns are best for Position Trades?

Busted Chart Patterns Revisited

Trading Example: Finding Value in Disaster

Chapter 20 Ten Factors Make Chart Patterns Work

What is a Double Bottom?

Ten Factors Revealed

Scoring System Checklist

Scoring Performance

Higher Scores Work Best

Case Study: Stillwater Mining

Case Study: LSB Industries

Case Study: Lumber Liquidators

Chapter 21 Three Winning Trades and a Funeral

The Intel Fiasco

Hudson Highland Hiccup

CNO Financial Group

Complete Production Services

Chapter 22 What Not to Do: Three Botched Trades

Medivation: Selling Too Late

Coldwater Creek: Selling Too Soon

Hovnanian: Selling at the Bottom

Chapter 23 What We Learned

Visual Appendix of Chart Patterns


About the Author