Contents

Introduction 3

Momentum Style 5

Aggressive Growth Style 7

Value Style 9

Growth and Income Style 11

‘All Style’ Style 13

Technical Analysis 15

Summary 16

What to do Next 17

5 Do’s and Don’ts for Trading Success 2

Introduction
There are a lot of different trading styles out there: Momentum,
Aggressive Growth, Value, Growth & Income, and more.

Some of these are more conservative while others are more

aggressive.

So which one is the best one?

The best strategy (or strategies) are the ones that are right for
you; whether that’s one of them, some of them, or a mix of all
of them together.

The best strategy is the one that’s in alignment with who you
are or want to be as a trader. Because if you find yourself trad-
ing a strategy that’s not in alignment with who you are as a
trader or the kinds of stocks you want to be in, you’re going
find yourself abandoning that strategy the moment the market
hits a rough patch.

This can be ill-advised.

Investors who are trading strategies or getting into stocks that

are not in agreement with the type of trader they are or want
to be will likely get spooked out of the market on any pullback,
only to then miss out on the subsequent rallies that follow. If
any of this has already happened to you, then you know what
I’m talking about, because there’s nothing more frustrating.

Not only will you lose money, but it can also feel like the market
is stacked against you. But it’s not.

5 Do’s and Don’ts for Trading Success 3

You just need to get into the right kinds of stocks for you.

In the following pages, we’re going to go over each one of the

five different trading styles and the unique characteristics that
make them work. Moreover, we’ll go over some of the most
profitable do’s and don’ts for each style to minimize your risk
and maximize your returns for each. If you apply them the right
way, you’ll be able to beat the market this year, and for years
and years to come.

Thanks and good trading.

Kevin Matras

Executive Vice President

5 Do’s and Don’ts for Trading Success 4

Momentum Style
A Momentum Style trader looks to take advantage of the
upward trend or downward trend in a stock’s price or earnings.

We’ve all heard the old adage ‘the trend is your friend’. And
who doesn’t like riding a trend?

Momentum traders believe that these stocks will continue to

head in the same direction because of the momentum that is
already behind them.

These are the kinds of stocks that will likely go day after day,
week after week, and maybe even several months in a row. And
of course, this also includes stocks making new 52-week highs.

I know some investors shy away from stocks making new

52-week highs.

First off, if you’re one of them, there’s no reason why you should
be afraid of stocks making new 52-week highs. But if you’re
uncomfortable buying stocks making new highs, that’s okay.
Don’t trade them. Remember, the best strategy is the strategy
that’s right for you. The momentum style might not be the right
style for you in this case.

Nonetheless, studies have shown that stocks making new highs

have a tendency of making even higher highs. And these are
the kinds of stocks the momentum trader is after.

The biggest concern a momentum trader will have (and proba-

bly one of the reasons why some people shy away from them) is
in determining if the stock is ready to keep moving higher, or if
it’s getting ready for a fall. Because as we all know, these kinds
of stocks can sometimes get ahead of themselves.

5 Do’s and Don’ts for Trading Success 5

But I have found that by adding a solid valuation metric to these
stocks, you can identify the high flyers that are still bargains
from the ones that are overpriced.

So be sure to combine a proven valuation met-

ric (like the Price to Sales ratio for example) with
your momentum stocks for a higher probability
of success.

My all time favorite valuation metric to use with momentum

stocks is the Price to Sales ratio; preferably less than 1 or less
than the median for its respective industry. And my experience
has shown the Price to Sales ratio to be absolutely one of the
best ones to use.

In fact, aside from the Zacks Rank, if I could only pick one item
to use for the rest of my life to picks stocks with, it would have
to be the Price to Sales ratio.

5 Do’s and Don’ts for Trading Success 6

Aggressive Growth Style
Aggressive Growth Style traders are primarily focused on stocks
with aggressive earnings growth or sales growth.

You’ll often find smaller-cap stocks in this category because

smaller-cap stocks are typically newer companies in the early
part of their growth cycle.

Of course, they don’t all have to be small-cap stocks. They can

be mid-caps stocks and even large-cap stocks too. For exam-
ple, if there’s a company that has been in existence for a while
and they have a new product or service that’s lighting sales on
fire, you may see some spectacular growth rates that allow the
company to work its way into the aggressive growth style camp.

But a word of caution, it’s not as easy as just looking for stocks
with the highest growth rates. So don’t go out and start look-
ing for stocks with a 500% or 1,000% growth rate. While there
will definitely be such stocks out there that do well -- my studies
have shown that those kinds of companies will typically under-
perform.

In fact, oftentimes, you’ll see companies with the highest

growth rates perform almost as poorly as those with the lowest
growth rates.

And why is that? To many, that sounds like the opposite of what
should be happening.

But one of the reasons for this is because many growth stocks
are priced for perfection. For example: a stock that earns 1 cent,
that is then expected to earn 6 cents, is a 500% growth rate.

5 Do’s and Don’ts for Trading Success 7

Now let’s say, for whatever reason, the analysts now believe
they’ll only earn 5 cents. That’s still a 400% growth rate. But
that’s also -100 points less than the original growth rate and a
-16.6% downward earnings estimate revision.

So if you’re the person that just got into that stock the day
before, and you’re wondering why on earth a 400% growth
rate stock is going down? That’s why!

Stocks with the highest growth rates oftentimes

perform just as poorly as those with the low-
est growth rates. Instead, look for stocks with
growth rates above the median for their industry,
but with growth rates less than 50%.

Why 50%? Because in my testing, I have found that once you

get above 50%, the returns start to drop. It’s usually because
those growth rates are just simply unsustainable. And for the
ones above 50% that do pan out, many of them will carry with
it a higher degree of risk.

Aggressive growth stocks are some of the most exciting stocks

out there. And they can be extremely rewarding. But you have
to use your head when looking for those kinds of companies, so
those shooting stars don‘t fizzle out on you.

5 Do’s and Don’ts for Trading Success 8

Value Style
Value investors and traders favor good stocks at great prices
over great stocks at good prices. This does not mean they have
to be cheap stocks in price though.

The key is the belief that they’re undervalued. That they are, for
some reason, trading under what their true value or potential
really is. The value investor hopes to get in before the market
‘discovers’ this and moves higher.

There could be many reasons why they’re being discounted by

the market. The value investor is trying to find these kinds of
stocks that have been ignored or overlooked by the market.

You can usually spot these kinds of stocks by looking at their

valuations, like their P/E ratio for example.

I know a lot of investors out there look at P/Es. But not all low
P/E stocks are good value stocks. Many companies have low
P/Es because they don’t have any real growth to speak of. They
lack earnings power. And people aren’t willing to pay up for
these stocks because there’s nothing to pay up for.

The key to finding true value stocks that are ready to move is to
make sure there’s a catalyst. Buying a stock and sitting with it
for years just because you believe it’s undervalued won’t make
you any money.

The key to finding successful value stocks that

can make you money is to make sure there’s a
catalyst. And nothing can wake up an investor
more than the catalyst of upward earnings
estimate revisions.

5 Do’s and Don’ts for Trading Success 9

My favorite upward earnings estimate revisions are for Q1 and
F1 over the last 4 weeks. And if you really want to increase your
odds of success, you can also focus in on the Sectors with the
best upward earnings estimate revisions as well.

It’s been said that value investing is one of the most profitable
ways to invest. And it’s true.

Value stocks usually require a longer time horizon, but by

combining value stocks with the right catalysts, you can find
yourself getting into the best value stocks for an immediate
price response.

5 Do’s and Don’ts for Trading Success 10

Growth and Income Style
The Growth and Income Style has always been popular. But it
has grown in popularity and importance even more so in recent
years.

Growth and Income investors are looking for good companies

with solid revenue that pay a good dividend.

Oftentimes, these are more mature, larger-cap companies.

Companies that may not have the kinds of spectacular growth
rates like some of the younger or smaller companies have (or
as they had themselves when they were younger and earlier in
their growth cycle).

But that doesn’t mean they’re not making money. Far from it. A
lot of these companies might be great companies, generating
huge amounts of cash. But because of their size, they may not
have the same growth opportunities they once had.

For example: let’s say there was a small-cap company that does
$100 million in sales and someone comes up with a great idea
that will increase sales by an additional $100 million. That’s great
news. And that company is now looking at a 100% growth rate.
But apply that to a mid-cap company that does $1 billion in sales
and that $100 million idea is now only a 10% increase in sales.
Now apply that same $100 million to a company that does $10
billion in sales and that’s only a 1% increase.

Simply put, for some of these companies, the law of big numbers
makes it harder to grow at the same pace that a younger and
smaller company is capable of. But the consistency of earnings
can be pretty impressive in its own right.

5 Do’s and Don’ts for Trading Success 11

And instead of investing all of their earnings back into the
company, they reward their shareholders by paying out a
portion of their profits in the form of a dividend.

Of course, as we said before, not all dividend paying compa-

nies have to be largecap companies. There are plenty of mid-
cap stocks offering exciting dividends with impressive growth
prospects as well.

Just remember, you don’t have to focus in on

just the largest of the largecaps for solid divi-
dend paying stocks. Focus in on the mid-caps and
smaller large-caps with the best dividend yields
too, and watch your profits grow.

By focusing more attention on the mid-cap stocks and smaller

large-cap stocks, you can increase the growth portion of your
growth and income stocks, while still enjoying the income
portion you normally would with large-cap stocks. And compa-
nies offering a little extra (dividends) are becoming some of the
most sought after companies around.

5 Do’s and Don’ts for Trading Success 12

‘All Style’ Style
We’ve gone through four great styles so far. And many people
already know which style of trade is right for them.

But don’t worry if you don’t fit perfectly into any one particu-
lar style. Most people have parts of some or all of the different
trading styles in them, including myself.

The ‘All Style’ Style is really just a combination of the best parts
of the different styles rolled into one.

For example, combining growth and value is a winning combi-

nation -- if you apply the characteristics of each style together.

Momentum and growth are also perfect partners. Searching for

one oftentimes helps you find a great in the other. But they’re
even more powerful when used in tandem.

And the combinations are endless.

This can help with diversification too. By combining the best

parts of each style, you’ll be identifying a wider array of stocks,
but ones that specifically meet your criteria and your style(s) of
trade.

Once you understand the different trading styles

and how they can work together, you’ll ‘sudden-
ly’ find yourself picking better stocks than you
ever have before.

5 Do’s and Don’ts for Trading Success 13

Don’t think, however, that you’re going to find stocks with a
100% growth rate that also pays a 10% dividend. Those things
are on the opposite ends of the spectrum.

But smartly combining the best of one or more styles together

that complement each other can make for a powerful strategy.

5 Do’s and Don’ts for Trading Success 14

Technical Analysis
No discussion on trading styles would be complete without the
inclusion of Technical Analysis (TA).

My favorite brand of technical analysis is chart pattern recogni-

tion. In addition to that, I also use moving averages and the RSI
Oscillator, amongst others.

Technical analysis is really just a study of price movement and

volume and all the different ways of displaying and measuring
that data. And it can be applied to any and all base styles of
trade.

Momentum style traders will typically monitor price trends and

moving averages, as well as volume changes and more -- all
forms of technical analysis. But this is also true for Aggressive
Growth traders as well. Value traders and Growth and Income
traders also look at technical analysis, including charts and price
patterns in an effort to determine when a stock will move and
in what direction.

Whether you consider yourself a fundamental

trader or technical trader, each one has some-
thing to offer. In fact, even the most die-hard of
technicians, while espousing the virtues of tech-
nical analysis, will still look at the fundamentals.
And nowadays even the strictest of fundamental
traders will at the very least glance at a chart be-
fore getting in.

Using both fundamental analysis and technical analysis together

is one of the most potent stock picking combinations.

5 Do’s and Don’ts for Trading Success 15

Summary
Picking winning stocks has never been easier once you know
what to look for.

In fact, you’ll find winning stocks all around you. Think about
the last car you bought. Once you decided what kind of car you
wanted, you probably saw them everywhere. They didn’t just
magically appear on the road. They were always there. You just
became aware of them.

And the same can be said for picking stocks. Once you’ve iden-
tified what kind of trader you are and the style that suits you
the best, it’ll become easier to find stocks with those kinds of
characteristics. This can help you take full advantage of the next
big move in the market and even outperform when the market
isn’t as cooperative.

Look, your investments are probably the largest, most impor-

tant chunk of money you’ll ever be responsible for in your entire
life. And if it isn’t now, it probably will be one day.

So it’s important to know how to better manage it.

And with the aforementioned do’s and don’ts on the various

trading styles, you can now be in a better position to do just
that.

5 Do’s and Don’ts for Trading Success 16

What to Do Next
In addition to the hand-selected picks included in
this special report, you can move yourself way ahead
of the crowd in any market environment with the
following:
• As part of this free report, you will now receive our free
daily e-newsletter, Profit from the Pros. Each morning,
Executive Vice President Kevin Matras will summarize the
market, what it means for investors and what to do next.
Plus you get links to articles featuring some of our top stock,
ETF and mutual fund recommendations. Be sure to look for
it in your email inbox before the markets open every day.

• Now you should bookmark our homepage to take advan-

tage of one of the most complete investment websites
around. Go there now:

www.zacks.com

• Even better, get all Zacks’ private buys and sells through
our Zacks Ultimate program. Watch our trades and market
insights from all of Zacks’ private portfolios from growth
to value to momentum stocks, from insider moves to big
earnings surprises, from options to ETFs, and much more.
This see-everything arrangement is unique: one month,
one dollar, not one cent of further obligation.

Learn more about the Zacks Ultimate Trial now

5 Do’s and Don’ts for Trading Success 17