Stock Trading – A Guide to Trading Stocks
Stock Trading – Stock Trading may sound scary because you are dealing with your own money but trading stocks can be very fun and lucrative if you have the right trading plan. Trading stocks is a lot different than Investing in Stocks because you are buying and selling in order to gain on short term moves. I’ve been trading stocks for over 15 years and I know the pros and cons of day trading vs investing. I will give you some stock trading ideas and information below as well as tips and pointers. If you can do your research and remain disiplined, you should do great. Keep in mind, stock trading is a lot harder than investing so you will need to dedicate several hours per day and have a plan. I run a stock trading group where we all give good ideas throughout the day and a send out a daily pre market email. If you are interested, click here.
Stock Trading vs Investing – First let’s separate Stock Trading and Investing right off the top. If you are investing, you are doing several hours of research per week and you are buying stocks to hold for the long term. If you plan to trade stocks, you are looking for short term gains with no plans to hold onto the stock. If you plan to do both, my advice is to create two separate online brokerage accounts. Trade stocks in one account, invest long term in the other account. Once you start mixing the two together you will begin doing dumb things like trying to flip your invstments in order to buy back lower, ect. However, you will eventually make a mistake and a stock you were trying to keep as an investment will rally 20% and you will miss the big move. After that, you will get angry and it will just be a total disaster. I’ve made every mistake in the book so that you don’t have too!
What Stocks to Trade? Finding the best stocks to trade isn’t easy. I start my stock trading day going through research reports, checking out news on my favorite stocks, opening up my streamer, and looking at stock charts. I follow about 20 different stocks each day and I keep track of their support and resistance levels in order to find levels where the stock will break out or break down. I then create my list of biggest gainers to see what stocks are hot and moving each day. A list of my stocks for stock trading are: Twitter (TWTR), Tesla (TSLA), Yelp (YELP), SolarCity (SCTY), Small Caps 3x Bull (TNA), Noodles & Company (NDLS), and Facebook (FB) as well as the biggest gainers of the day. After I create a watch list, I then send out my pre market email with stocks I’m looking to trade and the levels I’m watching.
In the stocks I mentioned above, I’m constantly watching them so I know what levels to buy right before the potential rally. I do this buy tracking resistance levels on the chart and previous highs. Tip – Buy stocks only when they break a resistance level.
Buy Stocks Right Before They Break Out – Buying a stock right before a break out is easier said then done right? Well, not really. If you know the level a stock has to break in order to break out, it should be super easy. This is why I like to watch resistance levels. Pay attention here because this is one of the most important stock trading tips I can give you regarding stock trading. Each trading session a stock hits a daily high and a daily low. You want to buy the stock the next day when it breaks a previous high. I will give you an example. Recently, Noodles & Company (NDLS) traded in a range between $36.06 – $37.35. $37.35 is now resistance since it was the high that day. The next day, NDLS only made it to $36.93 before closing at $36.35. Now, $36.93 is resistance but $37.35 is even more important now because NDLS failed to break it that day. On the third day, NDLS broke resistance at $36.93 and then broke $37.35 which was a buy signal. The stock went on to hit $39.91 that day. You can do this during the trading day by only buying a stock if it breaks through the high of the day. It sounds so simple right? Yes but we are taught to buy dips because we have an illusion that stocks are cheaper when they drop. The fact is, when we attempt to buy the dip, the stock trends to drop even lower. Now we are trapped and this is how you get in trouble and lose money. If you stick to only buying break outs you will not only have a better chance of the stock rising instantly, you will be able to take profits quickly and move on the the next trade. I cover this on my Stock Trading Rules page. If you have no idea how to buy a stock, click here.
Wall St. Computer Program Trading – Wall St. trading programs account for around 85-90% of daily volume on each stock exchange. This means all the volume and stock trading you see on a daily basis is generated by computer programs trading back for forth, profiting or losing from each move. My theory is that Wall St. trading program algorithms are set to short stocks when they break down through support levels and buy when they break up through resistance levels. When a stock breaks an important resistance level, you will usually notice the volume pick up due to the buying and the stock rise dramatically. During periods of major volatility the swings are wild!
Charts – Watch charts for resistance levels as well. I tend to use moving averages like the 10, 50, and 200 day moving averages as resistance levels to watch. When trading stocks, avoid buying the dip unless it’s a stock you really like and focus on buying on a break above a resistance level.