| Traders aren't concerned about fundamental analysis | | | | Now that you know this, here are the safest places |
| or economic indicators because in the short-term, all | | | | technically to buy a stock: |
| stocks fluctuate up and down. They are more likely | | | | 1) Breakouts - a stock going sideways starts going |
| to profit from technical indicators that show what | | | | up, especially on high volume. The sooner you catch |
| the stock is doing now. Investors, on the other hand, | | | | the big up day on volume the better. These moves |
| aren't concerned with the short term ups and downs | | | | tend to keep going up for days or weeks to come. |
| of a stock; they want to catch the broader move in | | | | (You know you're wrong when the first strong day |
| stock prices over time. | | | | doesn't follow through within a week or if it goes |
| In terms of technical analysis, there are three spots | | | | below the low of the day it went up on high volume. |
| on stock charts that are the best times to buy. This | | | | That point is usually much closer than the profit |
| is critical to know for short-term swing traders to | | | | target, making it a low-risk, high-reward setup.) |
| limit risk and increase reward -- traders want to | | | | 2) Pullbacks - a pullback is a stock in an uptrend, but |
| calculate what the risk and reward is going to be | | | | goes back down for a short period. For example, |
| before entering the trade. | | | | ABC stock went up from $50 to $70 in the past |
| Why is that important? It's important because you | | | | three months and dropped to $62 over the past two |
| don't know if the trade will work out. If you don't set | | | | weeks. In the past three days it went sideways in a |
| up your trades properly before the trade then you | | | | tight range of $.50 and today it went up $1. This is |
| aren't trading with an edge -- you aren't putting the | | | | an excellent buy spot to buy because we have |
| odds in your favor. For example, if you profit from | | | | reason to believe the longer-term uptrend will |
| 50% of your trades risking $1000 per trade, you | | | | continue, that the stock will go back up to previous |
| aren't going to make any money! For every $1000 in | | | | highs, and the stock appears to be starting that |
| profit, you will lose the same amount and end up | | | | uptrend now. You will risk not more than $1.50-2 to |
| treading water (before commissions). Since many | | | | make $7-8 |
| swing traders only make money on 40-50% of their | | | | 3) Note that #1 above is for a stock that is starting |
| trades, setting up your trades properly must be done | | | | to go up and #2 above is for a stock that is going |
| if you expect to succeed at trading. | | | | up (stocks going up are generally the kind of stocks |
| There are two things you can do to trade with an | | | | we want to buy....). This is for a stock that is going |
| edge: | | | | sideways. Over the past month we notice ABC stock |
| 1) Set up the trade so that your reward is better | | | | stopped going up when it hit $100 (resistance) and |
| than 1:1 - instead of risking $1000 to make $1000, | | | | stopped going down when it hit $80 (support). The |
| you make $2000-$5000 for every $1000 risked. That | | | | stock again is headed for $80 when we notice it hits |
| is what I will show you how to do in this article. | | | | $79.72 and has held above that in the last four |
| 2) You research for setups that profit more than | | | | trading days. This makes an excellent time to buy |
| 50% of the time. You can set up an account with | | | | because you can risk $1.50 to make $10, a reward: |
| TradeStation or another broker that offers research | | | | risk ratio of more than 6 to 1. If you made this trade |
| tools to help you do this, or just do it yourself using | | | | five times and were right once, the outcome would |
| free online services like Yahoo finance or Google | | | | be: 4 losses x $1.50 = $6 Loss....... and 1 win x $10 = |
| finance. There are books that teach how to do this | | | | $10 for a total profit of $10 - $6 = $4. That is how |
| and I teach it in my private counseling sessions (see | | | | to be wrong 80% of the time and still make money. |
| my website for more details...). | | | | Stick to your stops! Put in your stop loss order |
| As a short-term or swing trader, you only want to | | | | immediately after the purchase. If you get stopped |
| enter a trade when your reward is at least 2.5:1 and | | | | out, take a step back and take another look at the |
| the higher the better (I've seen it sometimes more | | | | stock and what's going on. |
| than 10:1). Know your entry point, your stop loss | | | | If you flip these examples upside down, you also |
| point, and your target profit point before entering | | | | have the three best times to short a stock. |
| the trade. Then you can calculate risk vs. reward. | | | | |