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 drops below 1.0800 after German Retail Sales data
EUR/USD has come under fresh selling pressure and trades below 1.0800 after the data from Germany showed that Retail Sales declined by 1.9% MoM in February. Resurgent US Dollar demand is adding to the downside in the pair. US data are next in focus.
GBP/USD stays weak near 1.2600 amid market caution
GBP/USD remains defensive near 1.2600 in European trading on Thursday. The hawkish tone from Fed Governor Christopher Waller keeps the US Dollar afloat amid a cautious trading environment ahead of key US data releases and the Good Friday trading lull.
Gold price holds strength ahead of US core PCE inflation
Gold price holds onto gains near $2,200 in Thursday’s European session. The precious metal exhibits firm footing ahead of the United States core PCE Price Index data for February, which will be published on Friday.
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.
RECOMMENDED LESSONS
Making money in forex is easy if you know how the bankers trade!
Discover how to make money in forex is easy if you know how the bankers trade!
5 Forex News Events You Need To Know
In the fast moving world of currency markets, it is extremely important for new traders to know the list of important forex news...
Top 10 Chart Patterns Every Trader Should Know
Chart patterns are one of the most effective trading tools for a trader. They are pure price-action, and form on the basis of underlying buying and...
7 Ways to Avoid Forex Scams
The forex industry is recently seeing more and more scams. Here are 7 ways to avoid losing your money in such scams: Forex scams are becoming frequent. Michael Greenberg reports on luxurious expenses, including a submarine bought from the money taken from forex traders. Here’s another report of a forex fraud. So, how can we avoid falling in such forex scams?
What Are the 10 Fatal Mistakes Traders Make
Trading is exciting. Trading is hard. Trading is extremely hard. Some say that it takes more than 10,000 hours to master. Others believe that trading is the way to quick riches. They might be both wrong. What is important to know that no matter how experienced you are, mistakes will be part of the trading process.