It is possible to make money trading stocks, even during bear markets, but it takes discipline, good research and a basic understanding of human nature and the group dynamics of stock markets. The number one thing to remember about trading stocks is that you do not have to be right all of the time, just over half the time.
Volatility is Your Friend
A volatile stock (or stock market) is one whose price moves significantly up or down on a relatively regular basis. Being volatile does not indicate a stock is moving either up or down, but just that it is moving relatively large amounts up or down relatively frequently. And since big moves up or down is what a nimble trader makes money on, volatility is indeed your friend.
Trading Overbought or Oversold Stocks
Trading stocks is not rocket science. It is about taking advantage of stock movement patterns. And while often it is not obvious why a stock will move up or down, sometimes it is is quite obvious and largely predictable that a stock is about to move in a particular direction. And trading overbought or oversold stocks is one such situation. The key of course is to identify the overbought or oversold stock and accurately predicting when it will start correct to fair value. There are many factors that play into this process and an example is instructive.
Example of an Oversold Stock
The stock price of Company A, a well-managed medium-sized pharmaceutical company, went down 10% yesterday after news that a competing company was introducing a generic drug equivalent to a drug that represented 12% of Company A's gross sales last year.
Today the overall markets are down and Company's A's stock price is down another 5%. You decide that Company A might be oversold and do some research to confirm your idea. By doing research you discover that Company A only owns two drugs that it distributes itself (and the rest of its income was from licensing deals on other drugs) and had anticipated this generic being introduced and was planning to sell the other drug it distributes and shut down its sales division (resulting in significant overall cost savings). With these facts in mind you decide the market has clearly over-reacted to the bad news and that the stock is oversold. On that basis you decide to go ahead and buy some of the stock as you are pretty sure it will correct to fair value in the near future.
Protecting your Gains and Preventing Big Losses
Consider protecting your gains and preventing big losses by placing trailing stop orders 10-50% above/below the purchase price of your positions.
Author John Muroto
Volatility is Your Friend
A volatile stock (or stock market) is one whose price moves significantly up or down on a relatively regular basis. Being volatile does not indicate a stock is moving either up or down, but just that it is moving relatively large amounts up or down relatively frequently. And since big moves up or down is what a nimble trader makes money on, volatility is indeed your friend.
Trading Overbought or Oversold Stocks
Trading stocks is not rocket science. It is about taking advantage of stock movement patterns. And while often it is not obvious why a stock will move up or down, sometimes it is is quite obvious and largely predictable that a stock is about to move in a particular direction. And trading overbought or oversold stocks is one such situation. The key of course is to identify the overbought or oversold stock and accurately predicting when it will start correct to fair value. There are many factors that play into this process and an example is instructive.
Example of an Oversold Stock
The stock price of Company A, a well-managed medium-sized pharmaceutical company, went down 10% yesterday after news that a competing company was introducing a generic drug equivalent to a drug that represented 12% of Company A's gross sales last year.
Natural Weight Loss Tips: Aloe
Refugees Fleeing Mostly Through Boat From DRC To Uganda
Today the overall markets are down and Company's A's stock price is down another 5%. You decide that Company A might be oversold and do some research to confirm your idea. By doing research you discover that Company A only owns two drugs that it distributes itself (and the rest of its income was from licensing deals on other drugs) and had anticipated this generic being introduced and was planning to sell the other drug it distributes and shut down its sales division (resulting in significant overall cost savings). With these facts in mind you decide the market has clearly over-reacted to the bad news and that the stock is oversold. On that basis you decide to go ahead and buy some of the stock as you are pretty sure it will correct to fair value in the near future.
Protecting your Gains and Preventing Big Losses
Consider protecting your gains and preventing big losses by placing trailing stop orders 10-50% above/below the purchase price of your positions.
Author John Muroto
Comments