3 Steps to Identify Winning Trades

We win the battle by simply buying and selling options. Call options are my focus here.

Step 1: Fundamental Analysis. You may focus on those companies whose business model you can understand. Remember Warren Buffett? He invests only in those companies whose products and services he could understand. You need to answer the following questions:

1) What's the company is doing? Can you understand how the company makes money?
2) Does the industry in which the company is situated attractive? Is the industry growing or shrinking? You may need to draw supply chain and conduct industry analysis. Don't forget Porter's 5 forces.
3) Who are the company's customers? are the company's customer increasing? Does the company have a competitive advantage over competitors that can not be easily copied?
4) What's the company's gross margin, operating margin and net margin, compared with its competitors and industry average? Is the margin improving over the years?
5) What are analyst's earning estimates? Upgrade or downgrade recently?
6) Is the company's earning increasing over the past 2 years and 8 quarters?

Step 2: Technical Analysis
1) Does the stock price keep increasing for several weeks already?
2) Is the recent volume above historical average volume?
3) Historically, does the stock price of the company change a lot on the day it report earnings?

Step 3: Key Development
1) What are the major news for the company? Positive or negative?

If you find that all these questions have positive answers, congratulations. You have identified a winning company.

Some website you need to know for identifying winning trades:
Yahoo Finance
MSN MoneyCentral
Google Finance
Briefing.com