Most baseball fans know that Barry Bonds currently holds the record for most home runs hit during a professional career. But are you aware that he also ranks 46th overall in strikeouts as well? His 1539 strikeouts are more than double the 762 times he hit one out of the park!
We all want the large winning trades when we are looking for opportunities in the markets. But how many times can you afford to strike out with your money? To be successful with your trading, you need to be consistent and not just look for the home run.
I’ll admit that it is not every day that an intraday trader will find that large winner. However, if you follow the right steps to prepare for trading every day, you will be more likely to find these opportunities when they arrive. As a bonus, you will also be able to identify and trade high probability trading setups that will be available consistently.
So what are the steps that you need to prepare for trading? Surprisingly they are not difficult or even too time consuming once you make it part of your routine. The first step is to identify the overall trend of the broad market. We use the S&P 500 in the United States but if you are trading in other countries you can use the Nifty, the Straits Times Index, the Nikkei, the FTSE or any market index. You need to then anticipate the probable direction for the trading day. Use your technical analysis skills to judge the strength of the trend and even see what related markets are doing. This includes index futures.
Once you have finished that research, then you need to find the stocks that will best participate in the move of the market for the day. There are a multitude of stock screeners that allow you to search for these. Remember to filter for stocks with good average volume to avoid being stuck in a trade or manipulated by a specialist or market maker. You also want to filter for stocks with good volatility but not so much that you are at great risk. I use average true range to find them. The guidelines differ from market to market but are discussed in depth in Online Trading Academy’s Professional Trader course.
In a strong market, I look for bullish stocks in bullish sectors. Those will usually participate in the broad market’s advance the best. In the bearish market trends I will obviously look for weak stocks in weak sectors. Something that is universally similar about the stocks in any country’s market is that roughly 60% of the stock’s movement will be directly related to the direction of the broad market. 30% of a stock’s movement will be related to the direction of the sector that the stock belongs to. This holds true even when the stock is moving in the opposite direction of the market. Even though the stock may be trending opposite of the market the turning points in trend will still occur at the same time.
Now that you have found the stocks ready to move, you need to identify your entries and exits for the trade. Be sure to avoid chasing price and be patient with your entries. We need to buy only at demand and sell at supply. Keeping to this rule will reduce chances of loss and increase possibilities for success. When you find the stocks that will participate in the broad market advance and plan the trades properly, then you are in the best position for high quality trades and may even land the occasional big one!
Neither Freedom Management Partners nor any of its personnel are registered broker-dealers or investment advisers. I will mention that I consider certain securities or positions to be good candidates for the types of strategies we are discussing or illustrating. Because I consider the securities or positions appropriate to the discussion or for illustration purposes does not mean that I am telling you to trade the strategies or securities. Keep in mind that we are not providing you with recommendations or personalized advice about your trading activities. The information we are providing is not tailored to any individual. Any mention of a particular security is not a recommendation to buy, sell, or hold that or any other security or a suggestion that it is suitable for any specific person. Keep in mind that all trading involves a risk of loss, and this will always be the situation, regardless of whether we are discussing strategies that are intended to limit risk. Also, Freedom Management Partners’ personnel are not subject to trading restrictions. I and others at Freedom Management Partners could have a position in a security or initiate a position in a security at any time.
Editors’ Picks
EUR/USD stabilizes near 1.0800 as trading action turns subdued
EUR/USD holds steady near 1.0800 on Thursday and remains on track to end the day in negative territory following upbeat macroeconomic data releases from the US. The action in financial markets turn subdued as trading volumes thin out heading into Easter holiday.
GBP/USD extends sideways grind above 1.2600
GBP/USD fluctuates in a narrow channel above 1.2600 on Thursday. The better-than-expected Initial Jobless Claims data from the US and the upward revision to the Q4 GDP growth help the USD stay resilient against its rivals and limits the pair's upside.
Gold pulls away from daily highs, holds above $2,200
Gold retreats from daily highs but holds comfortably above $2,200 in the American session on Thursday. The benchmark 10-year US Treasury bond yield stays near 4.2% after upbeat US data and makes it difficult for XAU/USD to gather further bullish momentum.
XRP price falls to $0.60 support as Ripple ruling doesn’t help Coinbase lawsuit against SEC
XRP programmatic sales ruling by Judge Torres was completely rejected by another US Court that ruled in favor of the SEC in a lawsuit against Coinbase.
Portfolio rebalancing and reflation trades emerge into Q2
Yesterday’s price action pointed at a possible end-of-quarter portfolio rebalancing as the session saw the laggards of the quarter like Apple and Tesla gain, and the stars like Microsoft and Nvidia retreat.
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