Techniques Of Successful Investors
Stock traders have to constantly change to a dynamic 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. Here is a list of my preferred investing techniques that I have learned over time.
The 50 and 200 day moving averages: A buy signal occurs when the 50 day moving average breaks above the 200 day moving average. Investors call this a Resurrection Cross. When the 50 day moving average crosses below the 200 day moving average, it is a sell signal. Investors call this a Burial Cross. These 50 and 200 day moving average crosses are among the most accurate buy and sell signal tools you will find. 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.
Find the catalyst: What is going to make buyers flood into the stock when you look in the news section? The catalyst is the engine that will drive a stock higher. 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. The best way to get good at being able to spot a catalyst is to get a list of the top performing stocks for the day. Go through the news releases and see if you can pick out what news story was responsible for the huge increase in share price for that day.
Beta: Look for stocks with a beta score greater than 1. The greater the beta the better. How much a stock moves when the larger market moves is what beta tells you. Stocks that can really move are what you want for swing trading. You probably will not be able to buy a stock like Apple or Walmart and have it go up 30% over the next few weeks or even months. Stocks with a lower beta score are great for defensive, buy and hold investing. However, for day trading or swing trading, lower beta stocks do not move enough for you to make a lot of money trading in and out of them.
More volume: Finding out that you can not sell a stock when the market is dropping is a painful lesson on the importance of volume. If the volume is too low in a stock, there are not enough sellers for you to execute a buy or enough buyers for you to execute a sell. Lower volume stocks require limit orders and patience to move in and out of them. 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. It is better to trade in a stock with higher volume. 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.
Do not trade penny stocks until you know what you are doing: Penny stocks have huge growth opportunity which is appealing to new investors. The real kicker though is that most of these penny stocks go worthless. Remember, a stock is a penny stock for a reason. Good money making companies do not trade for pennies a share. Never believe what you read in press releases. 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. Get good at trading stocks on major exchanges before you dive into penny stock investing. A good rule of thumb is to never invest more money than you can afford to lose in a penny stock. Penny stocks should be traded with a very small amount of gambling money only.
The 50 and 200 day moving averages: A buy signal occurs when the 50 day moving average breaks above the 200 day moving average. Investors call this a Resurrection Cross. When the 50 day moving average crosses below the 200 day moving average, it is a sell signal. Investors call this a Burial Cross. These 50 and 200 day moving average crosses are among the most accurate buy and sell signal tools you will find. 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.
Find the catalyst: What is going to make buyers flood into the stock when you look in the news section? The catalyst is the engine that will drive a stock higher. 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. The best way to get good at being able to spot a catalyst is to get a list of the top performing stocks for the day. Go through the news releases and see if you can pick out what news story was responsible for the huge increase in share price for that day.
Beta: Look for stocks with a beta score greater than 1. The greater the beta the better. How much a stock moves when the larger market moves is what beta tells you. Stocks that can really move are what you want for swing trading. You probably will not be able to buy a stock like Apple or Walmart and have it go up 30% over the next few weeks or even months. Stocks with a lower beta score are great for defensive, buy and hold investing. However, for day trading or swing trading, lower beta stocks do not move enough for you to make a lot of money trading in and out of them.
More volume: Finding out that you can not sell a stock when the market is dropping is a painful lesson on the importance of volume. If the volume is too low in a stock, there are not enough sellers for you to execute a buy or enough buyers for you to execute a sell. Lower volume stocks require limit orders and patience to move in and out of them. 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. It is better to trade in a stock with higher volume. 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.
Do not trade penny stocks until you know what you are doing: Penny stocks have huge growth opportunity which is appealing to new investors. The real kicker though is that most of these penny stocks go worthless. Remember, a stock is a penny stock for a reason. Good money making companies do not trade for pennies a share. Never believe what you read in press releases. 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. Get good at trading stocks on major exchanges before you dive into penny stock investing. A good rule of thumb is to never invest more money than you can afford to lose in a penny stock. Penny stocks should be traded with a very small amount of gambling money only.
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