Investors have to continuously change to a changing market. Learning to hit winning stock trades is a never ending endeavor. The best stock traders have developed procedures or tips that they use to make profitable trades. Below is a list of my preferred investing bits of wisdom that I have learned over the 20 years I have traded.
The 50 and 200 day moving averages: A buy signal occurs when the 50 day moving average breaks above the 200 day moving average. Professionals call this a Resurrection Cross. When the 50 day moving average crosses below the 200 day moving average, it is a sell signal. Professionals call this a Death Cross. This signal is incredibly accurate and one you should always be on alert for. Keep in mind that this tip is more for long term, buy and hold investors because these moving average signals involving the 50 and 200 day moving average take months to happen on the chart.
Catalyst: What is going to make buyers flood into the stock when you look in the news section? Think of the catalyst as the rocket fuel that will make the share price go up. The company should have a website with recent news stories, that's where you will find the catalyst. Examples of catalysts might be: stronger than expected earnings, upgrades, positive news from the FDA, signing of a new deal, opening a new manufacturing plant, a company buyout, and a share buy back. Go to Finviz to get the best performing stocks for that day, then start going through the news of each. You will get good at spotting the catalyst with this technique. What news item caused the stock to explode? Answer that and you will have identified the catalyst.
Decide on the right online broker: If you are a buy and hold investor, then you do not need all the fancy bells and whistles that an active day trader needs. You can go with a broker like TradeKing which has low per trade fees with a trading platform geared towards research. E-Trade is better for the active swing trader and day trader. E-Trade Pro comes with real-time stock screeners, 1 minute charts, level II quotes, and live CNBC streaming business news for free if you make 30 or more trades per quarter. If you want to specialize in shorting penny stocks, then Interactive Brokers is going to work better for you than Scottrade or E-Trade. Interactive Brokers will allow you to short stocks under $5 while TD Ameritrade and E-Trade will not.
More volume: We have all bought a stock at one time or another only to find out later that we can not sell out of it at the price we want. You can get trapped in a stock when there is not enough buyers available for your sell order to execute. Lower volume stocks require limit orders and patience to move in and out of them. On day's when the market has a big move down, you can get trapped in a low volume stock and be unable to sell your shares as the stock drops. Look for stocks that trade over 500,000 shares per day. The more volume the better. Volume is a measure of liquidity in a stock and how easily you can trade in and out of it at the price you want.
Know what you are doing before you try to gamble in penny stocks: Many times, amateur investors will jump into penny stocks because of the enormous growth opportunity. Problem, many of these penny stocks go worthless. There is a reason a stock is trading for only a few cents per share. Good money making companies do not trade for pennies a share. Do not just read press releases and news and automatically believe what you are reading. Penny stock companies will often hire professional marketers to spin incredible stories of gold at the end of a rainbow. Penny stocks usually trade over the pink sheets or the OTCBB markets. These exchanges have lower listing requirements. The pink sheet market does not even require a company to be current with their financial filings in order to be listed. If a free penny stock newsletter tells you to buy a stock, it's probably a pump and dump in the making. Marketers create these bogus penny stock newsletters to pump stocks they have been paid thousands of dollars to promote. These are often called pump and dumps because a stock will run up on the promotion, then come crashing down a few days or weeks later. It is better to not trade penny stocks until you have gained experience trading stocks that are listed on the major exchanges. A good rule of thumb is to never invest more money than you can afford to lose in a penny stock. I like to think of penny stocks as my mad money plays.
The 50 and 200 day moving averages: A buy signal occurs when the 50 day moving average breaks above the 200 day moving average. Professionals call this a Resurrection Cross. When the 50 day moving average crosses below the 200 day moving average, it is a sell signal. Professionals call this a Death Cross. This signal is incredibly accurate and one you should always be on alert for. Keep in mind that this tip is more for long term, buy and hold investors because these moving average signals involving the 50 and 200 day moving average take months to happen on the chart.
Catalyst: What is going to make buyers flood into the stock when you look in the news section? Think of the catalyst as the rocket fuel that will make the share price go up. The company should have a website with recent news stories, that's where you will find the catalyst. Examples of catalysts might be: stronger than expected earnings, upgrades, positive news from the FDA, signing of a new deal, opening a new manufacturing plant, a company buyout, and a share buy back. Go to Finviz to get the best performing stocks for that day, then start going through the news of each. You will get good at spotting the catalyst with this technique. What news item caused the stock to explode? Answer that and you will have identified the catalyst.
Decide on the right online broker: If you are a buy and hold investor, then you do not need all the fancy bells and whistles that an active day trader needs. You can go with a broker like TradeKing which has low per trade fees with a trading platform geared towards research. E-Trade is better for the active swing trader and day trader. E-Trade Pro comes with real-time stock screeners, 1 minute charts, level II quotes, and live CNBC streaming business news for free if you make 30 or more trades per quarter. If you want to specialize in shorting penny stocks, then Interactive Brokers is going to work better for you than Scottrade or E-Trade. Interactive Brokers will allow you to short stocks under $5 while TD Ameritrade and E-Trade will not.
More volume: We have all bought a stock at one time or another only to find out later that we can not sell out of it at the price we want. You can get trapped in a stock when there is not enough buyers available for your sell order to execute. Lower volume stocks require limit orders and patience to move in and out of them. On day's when the market has a big move down, you can get trapped in a low volume stock and be unable to sell your shares as the stock drops. Look for stocks that trade over 500,000 shares per day. The more volume the better. Volume is a measure of liquidity in a stock and how easily you can trade in and out of it at the price you want.
Know what you are doing before you try to gamble in penny stocks: Many times, amateur investors will jump into penny stocks because of the enormous growth opportunity. Problem, many of these penny stocks go worthless. There is a reason a stock is trading for only a few cents per share. Good money making companies do not trade for pennies a share. Do not just read press releases and news and automatically believe what you are reading. Penny stock companies will often hire professional marketers to spin incredible stories of gold at the end of a rainbow. Penny stocks usually trade over the pink sheets or the OTCBB markets. These exchanges have lower listing requirements. The pink sheet market does not even require a company to be current with their financial filings in order to be listed. If a free penny stock newsletter tells you to buy a stock, it's probably a pump and dump in the making. Marketers create these bogus penny stock newsletters to pump stocks they have been paid thousands of dollars to promote. These are often called pump and dumps because a stock will run up on the promotion, then come crashing down a few days or weeks later. It is better to not trade penny stocks until you have gained experience trading stocks that are listed on the major exchanges. A good rule of thumb is to never invest more money than you can afford to lose in a penny stock. I like to think of penny stocks as my mad money plays.
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