Brandon Wendell, CMT
Brandon Wendell
Many investors seek out information on how to trade and invest in the stock markets. Something that may be just as important as how to trade, is what to trade. In speaking to many investors and traders over the years, I have seen people either lose money quickly or , because they didn’t know how to pick stocks for profit, they are forced to hold on to a worthless investment.
Having a proper trading strategy to increase your odds is a key thing to increase your potential for making money in the markets. Online Trading Academy teaches our students a patented core strategy that has a track record of success. However, this is only part of what is needed. If you try to apply the trading strategy to the wrong type of stock, your chances for success go down greatly.
Trading and investing properly is a matter of risk management. When new traders enter the market, they may make money occasionally, but in long term the more experienced traders take that money back. This is because they have risk management strategies that put the odds in their favor. With the right strategy, you can turn the odds in your favor in the markets, too. You have to create a strategic edge for yourself so you are speculating using a measured amount of risk.
How to Pick Stocks
Getting back to how to pick stocks, Online Trading Academy’s core strategy is so successful because it mimics what the most successful group in the markets do. That group is made up of the large institutions like Goldman Sachs and JP Morgan. These institutions consistently profit from the financial markets, year after year. The interesting part is that because they are so large, when they enter and exit the markets they leave a footprint in the charts. This allows the educated investor to mimic their actions and, in turn, their profits.
Therein lies the problem with stock selection. Many people are attracted to penny stocks or lower priced securities because they can buy more of them leading to a belief that there is more potential for making greater profits. This is a trap. In a recent workshop I conducted, a student wanted to look at Insys Theraputics Inc., (INSY). Immediately upon looking at the stock chart, I noticed an issue. Strong supply and demand zones were absent and price action seemed more random.
Upon further analysis, I discovered the reason behind this. If we were to pick this stock to invest in, we would not be following the institutions footprint as there is barely any institutional participation in the stock at all! The company only has 18.7 million shares and less than 30% of those shares are held by institutions. This means, that without being able to see and mimic the institutional movement you are taking on more risk than you should investing with this stock.
This is not to say that all low-priced stocks are bad to trade. In searching for low priced stocks with high institutional ownership, I came across Barnes & Noble, (BKS). The stock was trading lower in price than INSY but had a much larger float, (over 55 million shares), and more importantly the institutional ownership was over 70%!
This meant that as an educated trader, we could identify the entries and exits of the institutions and copy their actions to increase our chances for success. Looking at the chart for BKS, there are quality supply and demand zones that would allow high probability, low risk and great profits. That’s how to pick a stock!
So, knowing what to trade can be as important as how to trade. I often tell my students, if you want to take more risk than you should with your investments go ahead, but if you want to make money, learn how to speculate properly in the financial markets. Online Trading Academy can show you how!
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 flirts with daily highs, retargets 1.1900
EUR/USD regains upside traction, returning to the 1.1880 zone and refocusing its attention to the key 1.1900 barrier. The pair’s slight gains comes against the backdrop of a humble decline in the US Dollar as investors continue to assess the latest US CPI readings and the potential Fed’s rate path.
GBP/USD remains well bid around 1.3650
GBP/USD maintains its upside momentum in place, hovering around daily highs near 1.3650 and setting aside part of the recent three-day drop. Cable’s improved sentiment comes on the back of the Greenback’s irresolute price action, while recent hawkish comments from the BoE’s Pill also collaborate with the uptick.
USD/JPY edges up above 153.50 with all eyes on US CPI figures
USD/JPY appreciates above 153.00 but remains on track for a 2.4% weekly loss. Trading volumes remain subdued on Friday, ahead of the IS CPI release. The Yen remains supported by hopes of a stable government and calls for further BoJ tightening.
Editors’ Picks
EUR/USD: Yes, the US economy is resilient – No, that won’t save the US Dollar Premium
Some impressive US data should have resulted in a much stronger USD. Well, it didn’t happen. The EUR/USD pair closed a third consecutive week little changed, a handful of pips above the 1.1800 mark.
Gold: Metals remain vulnerable to broad market mood Premium
Gold (XAU/USD) started the week on a bullish note and climbed above $5,000 before declining sharply and erasing its weekly gains on Thursday, only to recover heading into the weekend.
GBP/USD: Pound Sterling remains below 1.3700 ahead of UK inflation test Premium
The Pound Sterling (GBP) failed to resist at higher levels against the US Dollar (USD), but buyers held their ground amid a US data-busy blockbuster week.
Bitcoin: BTC bears aren’t done yet
Bitcoin (BTC) price slips below $67,000 at the time of writing on Friday, remaining under pressure and extending losses of nearly 5% so far this week.
US Dollar: Big in Japan Premium
The US Dollar (USD) resumed its yearly downtrend this week, slipping back to two-week troughs just to bounce back a tad in the second half of the week.
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