I am often asked by relatively inexperienced traders whether there is a simple method that they can use that is consistently profitable. The answer is yes, and better still, it works in both a day trading timeframe and a swing trading timeframe. Heck, it even works if you want to 'buy and hold' your stocks! Basically, this system allows you to build up chunks of equity in your favorite companies at effectively zero cost.
Sounds too good to be true, doesn't it? Surely it must be a complicated stock trading system, with high drawdowns and large risk? Nope. So why do I offer it here for free? Because the Trader's Collective asked me, simple as that. Right, here we go.
Choose your target security or stock, and wait for it to start moving upwards strongly. This could be because the whole market is in an upswing, or perhaps your chosen stock is forging ahead on good news. Buy a round lot of the stock, say 1,000 shares. Immediately put a limit order on it to sell 90% of the stock at a price that will recover ALL your costs (including dealing costs). Say for the sake of argument that you spent $10,000 on the stock (at $10 per share, obviously), and $25 on execution fees, you would be looking to sell 900 shares at about $11.14 or better. This would recover your initial outlay of $10,025 and leave you holding 100 shares of your favorite company, completely free!
Ah, you say. Excellent. But hang on! What happens if it doesn't hit a ten percent rise anytime soon? Or worse, starts to fall? Welcome to the world of stock trading, where losses are also possible! The key to successful trading is to control any losses you incur. This means firstly setting a rigorous stop loss that will trigger automatically, and secondly trying to ensure that your entry criteria give a better than average chance the stock will move the right way. Let's look at that second point first.
The probability of a trade 'going the wrong way' can be greatly reduced by setting up stringent entry criteria. In a day trading sense, the best way to spot a breakout happening is to look for strong pushes thru trading 'support'. You could use ordinary 'floor traders pivots' for this, although by far the best indicator for these levels I have ever personally found are of course the levels from www.surefirething.com - the breakouts from H4 have to be seen to be believed, and the reversal breakouts up thru L3 are also pretty good (although you have to make sure the gap between L3 and H3 is big enough to give you your trade, because it will also usually reverse at H3!). For more on this aspect of trading you might want to head on over to www.traders101.com and read up a little.
In a swing trading sense, you could try watching for a 'Grail' signal. These signals can be obtained free at www.tradestars.com for almost every stock in play, and provide darn fine entry points. A recent large-scale analysis showed that over 84% of 'Grail' signals provided trades that were 'in the right direction' within 2 days of opening them. That's pretty good odds. Remember that www.tradestars.com signals are long AND short - you only want the LONG signals for this stock trading strategy.
Regardless of good clean entry points, you still must always have a stop loss in place, because the markets will come and get you if you don't. Period. How do you set a good stop loss? It's not so hard as you might think! Space precludes me explaining in this article, but the topic is covered at www.traders101.com and I will expand on this in a later article. Good hunting!
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