Highlights in this issue:

*** Timing to get your trading plan up and running…
*** Make 2010 the year your portfolio takes off…
*** Why you shouldn’t try to “hit a six” with every share…

-----------------------------------------
From the pen of Karin Iten…

Dear Investment Academy Reader,

A New Year means new resolutions – and this year is no exception. But while most self-improvement lists focus on losing 20kgs or quitting smoking, I’m here today to fill you in on four must-have resolutions for your portfolio.

To invest successfully in today’s market, you must have a trading plan. And what better time is there to form good trading habits than the New Year?

The four resolutions below will help you craft your own plan – and following them could be the key to making 2010 the year your portfolio takes off.

Resolution 1: Create a plan based on “who you are as an investor”

Before you can create a plan, you need to determine what kind of investor you are. This is an absolute must!

What are you trying to accomplish with your money?

I already said that in today's market, you must have a plan. But it can't just be any old plan. It must be one based on who you are as an investor or trader and what you’re trying to accomplish.

So ask yourself, are you:
1.    An investor? If you invest for the long-term (12 months or more), then you're an investor.
2.    A trader? If you invest for the short-term (a few days to a few months), then you're an trader.

If you’re a trader are you:
a.    A long only trader? (This means you only buy shares hoping that your trade will go up - you never short the market.)
b.    A short only trader? (This means you only sell shares hoping that your trade will go down - you never buy the market.)
c.    A combination of long and short?

Why are these questions so important? Well, if you're long only, then in times of downtrends, you need to be prepared to sit in cash or face some difficult times with your investments. If you're short only, then you too will have to sit in cash or face difficulty when the overall market trend is up.

But you only really “arrive” when you get to the point where market direction doesn't matter. Your plan should take into account both sides of the coin. You should no longer have to ask whether the market’s going higher or lower.

When you create your plan, take out a piece of paper and set down your financial goals for your portfolio as well as the investment strategies you’re going to use to get there. Once you’ve done that, write down what you need to specifically focus on.

Resolution 2: Trade what you see – Not what you hear, think or fear

One of my favourite pieces of trading advice is: Trade what you see, not what you think, hear or fear. This means turning off Summit TV and staying focused on understanding what kind of chart patterns make for successful investments. Then, have the confidence to pull the strings when they trigger.

Investors, you should look at three types of chart patterns:

1.    Uptrend patterns
2.    Downtrend patterns
3.    Changes in trends patterns

And that's all an investor should look for. You shouldn’t care what XZY analyst said about a share, what industry experts had to say on last night’s Bloomberg, or if you didn't like the service we got at this company's store. None of that matters. All that matters is what the chart is telling you and what you need do as a result.

Resolution 3: Understand it’s a market of stocks, not a stock market

How do you make money consistently month after month regardless of market direction? How do you make money being long in a down market?

The answer is simple. It's a market of stocks, not a stock market. Market direction shouldn’t matter. All that matters is finding shares that have completed set-ups ideal for significant gains and doing what the chart tells you.
 
Even in the most raging bull market, a sector or two may suddenly fall out of favour and you'll start seeing topping signs on the charts of the industry's leading shares. This means it's time to go short – even though the overall market is going up.

Resolution 4: Before you invest, know your exit strategy

I never invest in anything without looking at the chart and determining my stop loss and the point I will exit with a profit. You shouldn’t either…

For example, one of my favourite investment rules is to buy at support and take profits at resistance. So before you buy a share, look at the chart to ensure you’re picking it up at support or within 5%-10% of your buy point. There are patterns out there everyday that allow you to get in at the lowest point possible where your downside risk is minimal.

Also look to see where the stock may encounter resistance and make sure you know what that point is. Next make sure it’s far enough away from your buy price to reap a profit that makes the capital risk worthwhile. If the share moves into new high territory, take profit.

And don’t try to “hit a six”. Just like in cricket, the key is to hit singles and then move on and hit another single. That’s how to achieve consistent profits with little risk. Only when you do this will the real “big hits” come.

Having a plan, keeping it simple, understanding charts and using the charts to buy right and sell with a profit avoids making mistakes based on emotion, greed or misinformation.

Here’s to your financial freedom,

Karin Iten
For the Investment Academy