| Wall St. Warrior ⚔️ Consider THESE When Making Your Trading Decision
Yesterday I started talking to you about trading strategies. There are five top ones you should consider.
We covered the first three yesterday.
Today we'll go over the final two. And then I'll talk to you about what you need to analyze once you've picked the strategy best for you.
4. Scalping No, we're not talking about concert tickets here …
Scalping is one of the less-popular trading strategies because it requires intense concentration and stamina.
Scalpers take tiny profits off small price movements over and over again. Each play only exposes the investor to the market for brief periods of time, which can mitigate risk.
Think of scalping as day trading in micro moments. You can't lose much money if you're moving in and out of the market constantly, but you can lose money over time if you're consistently wrong about the price action.
5. Long Term Investments You've probably heard of buy-and-hold strategies.
They involve buying shares in a relatively stable stock — your Apples and G.E.s and IBMs of the world — with the goal of profiting modestly over a long period of time.
Long-term investments might remain in your portfolio for years or even decades.
There's nothing wrong with long-term investments, but they're not why I trade. I want every play to result in exponential profits. I'm not interested in profiting 10 percent. I want to profit 20 percent, 50%, or even 100%.
Stock Market Strategies: What You Need To Analyze? Now that you're a little bit more comfortable with trading strategies, what do you need to analyze?
No matter what trading strategy you espouse, you need solid analysis under your belt. Otherwise, you're destined to lose money.
I emphasize to my students all the time that education is everything. If you don't know anything about a given stock, how can you possibly predict the price action, whether it's over a few seconds or several years?
Let's look at some of the factors that should play into your trading decisions. Each one deserves careful consideration as you move in and out of positions.
Liquidity Illiquid companies don't interest me. There's not enough money to go around, so they're inherently dangerous. When I'm choosing penny stocks, I look for maximum liquidity so I can exit my trade quickly when necessary.
Essentially, liquidity refers to the ease with which you can enter or exit a trade. When there aren't any shares to buy, for instance, you can enter the trade. And if nobody's willing to buy shares, you can't exit.
High liquidity equates to high stability. Most penny stocks are unstable by default. They're small companies with very little money and few assets. Lots of them will inevitably fail.
That's why you have to constantly look for better opportunities. When a penny stock — or any security, for that matter — offers high liquidity, you can feel more confident in the play.
Volatility A highly volatile stock experiences radical price action. There might be a general trend up or down, but you see spikes in both directions.
High volatility tells you that people are actively trading that stock. It's a positive sign when it comes to setting up the right position.
If a liquid stock has high volatility, I know I can get in and out of the position with no trouble and that I can take advantage of the price action to profit.
You can visually point out a volatile stock on a chart because you see movement over time, whether it's five days or 200 days.
Trading Volume You need to understand trading volume, no matter which of the trading strategies appeals to you most.
Volume tells you how many shares of a security have been traded over a specific span of time, such as between market open and close on a certain day.
High volume indicates lots of trading activity in large positions.
Candlestick Patterns Lots of different stock charts exist, but I prefer candlesticks. They're packed with information you can digest quickly, which makes them ideal for sussing out your next play.
Keep in mind, though, that even charts can deceive you. I've seen patterns play out over and over again, and then suddenly stop.
When you buy into a position based on patterns you see on a candlestick chart, don't let your attention waver. If the price action moves against you, get out.
Technical Analysis Candlestick chart patterns are part of technical analysis, which is just a fancy way of saying that you read charts.
Technicals can also involve creating spreadsheets, analyzing overlapping patterns, and comparing moving averages over different periods of time.
Fundamental Analysis To be honest, fundamental analysis doesn't matter much when it comes to penny stocks. You won't be reading financial reports because they aren't available. The SEC doesn't regulate penny stocks like it does larger stocks.
The fundamentals that do matter mostly revolve around news. If you hear new information about a penny stock company that could impact its price action, pay attention. Dig into the stock's history to determine whether a similar event has occurred before.
I also pay attention to promoters — not because I think they have good stock picks, but because I like to short them on the downside.
Trading strategies can also involve buying earnings winners.
These stocks experience big percent gains based on news. You don't want to ride the entire upswing, but take your small profits as they come.
You're almost there…
I have some of my key tips if your a beginner. These can be applied to any of the trading strategies we've discussed.
I'll go over these with you in the next issue.
They're sure to increase your chances of success if used properly (I'll explain everything tomorrow…).
Keep an eye out for my next issue.
Talk to you tomorrow,
Editor, Wall St. Warrior
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