Brandon Wendell, CMT
Brandon Wendell
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: US Dollar to remain pressured until uncertainty fog dissipates
Unimpressive European Central Bank left monetary policy unchanged for the fifth consecutive meeting. The United States first-tier employment and inflation data is scheduled for the second week of February. EUR/USD battles to remain afloat above 1.1800, sellers moving to the sidelines.
GBP/USD softens to near 1.3600 as BoE hints further rate cuts
The GBP/USD pair loses ground to near 1.3610 during the early Asian session on Monday. The Pound Sterling softens against the Greenback amid growing expectations of the Bank of England’s interest-rate cut. Traders will take more cues from the Fedspeak later on Monday.
USD/JPY drops back below 157.00 on Japan's verbal intervention
USD/JPY has come under moderate selling pressure below 157.00 in the Asian session on Monday. The Japanese Yen lost ground to near 157.70 following Japan’s ruling Liberal Democratic Party's outright majority win in Sunday’s lower house election, opening the door to more fiscal stimulus by Prime Minister Sanae Takaichi. However, JPY buyers jumped back and dragged the pair southward on FX verbal intervention by Japan’s Finance Minister Katayama.
Editors’ Picks
USD/JPY drops back below 157.00 on Japan's verbal intervention
USD/JPY has come under moderate selling pressure below 157.00 in the Asian session on Monday. The Japanese Yen lost ground to near 157.70 following Japan’s ruling Liberal Democratic Party's outright majority win in Sunday’s lower house election, opening the door to more fiscal stimulus by Prime Minister Sanae Takaichi. However, JPY buyers jumped back and dragged the pair southward on FX verbal intervention by Japan’s Finance Minister Katayama.
Gold eyes acceptance above $5,000, kicking off a big week
Gold is consolidating the latest uptick at around the $5,000 mark, with buyers gathering pace for a sustained uptrend as a critical week kicks off. All eyes remain on the delayed Nonfarm Payrolls and Consumer Price Index data from the United States due on Wednesday and Friday, respectively.
AUD/USD: Buyers eyes 0.7050 amid upbeat mood
AUD/USD builds on Friday's goodish rebound from sub-0.6900 levels and kicks off the new week on a positive note, with bulls awaiting a sustained move and acceptance above mid-0.7000s before placing fresh bets. The widening RBA-Fed divergence, along with the upbeat market mood, acts as a tailwind for the risk-sensitive Aussie amid some follow-through US Dollar selling for the second straight day.
Top Crypto Gainers: Aster, Decred, and Kaspa rise as selling pressure wanes
Altcoins such as Aster, Decred, and Kaspa are leading the broader cryptocurrency market recovery over the last 24 hours, as Bitcoin holds above $70,000 on Monday, up from the $60,000 dip on Thursday.
Weekly column: Saturn-Neptune and the end of the Dollar’s 15-year bull cycle
Tariffs are not only inflationary for a nation but also risk undermining the trust and credibility that go hand in hand with the responsibility of being the leading nation in the free world and controlling the world’s reserve currency.
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