Investing in stocks for the simple-minded. That hurt, didn’t it? Relax, it’s just a title. It’s also a call to wear tough armor if you want to succeed in the stock investing game. It’s really a dog eat dog proposition here on Wall Street. The good news is that you can do it. If you have your armor on then it’s time to fight but first you need some weapons. I’ve included three killer strategies that will help any level stock investor on their way. You won’t read about most of these anywhere else, so enjoy and always remember online paper trading first, you’ll read it again because it’s so important. Good luck playing the game of investing in stocks – it pays off very well if you learn from the pros. Here we go:
bringing home winners
Stocks that are trading at or near their daily highs are good candidates to take home and play for a day or two. At the very least, they are generally profitable at the market open the next day. Market makers often get stuck having to cover their short positions in the first fifteen to thirty minutes. What usually ends up happening is that a gap is created and that pop often provides a nice quick win. The danger of this strategy is the possibility that negative news (eg, demotion, etc.) will have the opposite effect. Of course, this is the danger you are always faced with as a swing trader and that is one of the most attractive aspects of day trading: there are no overnight positions. All said and done, this is a great move. In my early days I did this trade quite a bit and it did very well.
Remember to trade online paper first.
Buying ETFs
This has become increasingly popular. Today, there is only one or more ETFs for each sector. No, the “Investing in Stocks for a Dummy” article would be complete without discussing ETFs. Yahoo Finance provides a nice list that will tell you all the ETFs known to man. The good thing about trading the ETF is that you avoid the aforementioned risk that an individual stock carries. Buying an ETF or selling it short (here you have the added benefit of not having the up rule) in an active sector gives you a good risk/reward ratio. Remember to trade online paper first.
shortening strategies
Shortening isn’t for everyone and that’s probably a good thing. I lost a large amount of money in the beginning by making the mistake so many repeat. I shorted stocks in a strong bull market. This goes against everything I stand for now. I make money because I work with the market, not against it. It is very difficult to constantly make money by shorting stocks when the general trend is going in the opposite direction. For whatever reason, traders often want to fight this, but rarely win consistently. With that being said, you should be familiar with how to shorten and when to shorten. After all, the bear market comes and goes and if you are trying to sell stocks long in that environment, you are going to run into the same problems as traders who short in an uptrend environment.
When I short, I look to take advantage of the momentum of a possible fall in stocks. Stocks fall harder and faster than they rise. A lot of money can be made if it is cut correctly.
It would be wise to consider the following factors that may work in your favor if you are going to short: seasonality (as mentioned above), sector weakness, etc.
There is a warning that I hope you will heed. Whatever you do, please save yourself money and heartache – DO NOT short stocks because you “have a hunch”. DO NOT short a stock because it “looks like it has to go down.” Have a strategic intent backed by good research before considering the short sale. Unless you are in an obviously bear market, I would not even get involved in a short sale until I have a few years of trading experience. Remember to trade online paper first.