How To Invest: A Good 2022 Begins With A Hard Look At Your 2021 Trades – Investor's Business Daily

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Good investors have buy and sell rules they follow to keep their portfolios out of the red. A great investor does a year-end post-analysis to study the application of those rules.


Learning how to invest requires honest self-evaluation. Faced with frequent sector rotation, 2021 was not the easiest year investors could have hoped for, but a critical post-analysis will prepare you to meet 2022 head-on.

If you want to learn about your trading habits, start by studying each of your trades for 2021. Print out the daily and weekly charts of the stocks you held with either IBD Charts or MarketSmith. Mark where you bought and sold your positions. For each trade, see how closely you followed your buy and sell rules and ask yourself these questions:

Was the stock market in a confirmed uptrend when you made your purchase?

It will always be easier to swim with the market’s tide. According to IBD research, three out of four stocks follow the current stock market trend. If the overall market is in a correction, it is not the time to be adding to your portfolio. You need to reduce exposure. If you are ever unsure about where the current market is heading, IBD’s The Big Picture will set you on the right path.

Did you buy the right stock?

There is no need to settle when looking to invest. Your stock should have both earnings and sales growth. Quarter to quarter, your stock’s sales and profits ideally should be accelerating. An EPS gain of at least 25% is recommended from the most recent quarter when compared with the same quarter of the year prior.

Make use of the IBD Stock Checkup and stick with the top one or two stocks in an industry group.

IBD ratings such as the Composite Rating and EPS Rating to filter your search for leading stocks.

Was it the right price at the right time?

If you want to maximize your bottom line, wait until the stock is breaking out past a buy point from a proper base. MarketSmith’s pattern recognition will train you to identify these foundational attributes.

A common mistake is to chase stocks after they’ve become too extended from proper buy areas.

Did you follow your sell rules?

Identify when you sold a stock and why. An honest inventory of your reasons for exiting is crucial. Your emotions shouldn’t be the driving force here. Lock in most profits when you are 20%-25% up from your entry and don’t let these gains round-trip.

If your stock is failing, don’t let it take your portfolio down with it. Keep your losses small and cut a stock when it drops 7%-8% below your purchase price.

Frequent rotation in the 2021 stock market made this a valuable rule, giving investors a good chance to pocket gains before sellers swarmed.

That same rotation also contributed to many cases in which stocks rose more than 10% and gave back all gains, i.e. they round tripped.

If your stock is failing, don’t let it take your portfolio down with it. Keep your losses small and cut a stock when it drops 7%-8% below your purchase price.

The answers to these questions will have you running a tight ship and sail fearlessly into 2022.

Learn from your success, too

Learning from mistakes is an excellent way to get ahead in your trading. But also study your successful trades and jot down the things you did right.


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