When trading on line, stocks can be very profitable or very risky. The good news is that we can reduce our risk while still maximizing our gain. How? Well, we will show you three strategies which are proven and true. My personal favorite of this group is shorting stock but we will first look at two others. The first strategy for making big money with on line stocks is ...
Rolling Stock Strategy
This is a strategy that has been made known by others but I include it here simply because it works well in non-trending markets. It is important to have a full arsenal of weapons to trade with as stock environments change so you must be ready. The way this strategy works is to find on line stocks that have shown a clear historical price pattern. These stocks will roll along up and down from support to resistance. Another term for this trading is called "channeling." You would buy at the bottom of the channel and short at the top of the channel. It is all about support and resistance. Not too complicated. Of course, the hard part is finding the right stocks and trading in a non-trending environment. Make sure you have the right environment to trade in and a long enough historical pattern to feel confident with. The big drawback with this strategy is the danger of "breakouts." The possibility of a stock moving out of the support or resistance area.
Trading stocks that have increasing volume
A surge in trading activity is the most visible way to detect institutional investors working on a stock. Nothing shows bullish interest in a stock like an increase in volume as the price increases. It is the professionals -- mutual funds, hedge funds, pension funds and other major investors -- that can really drive up the on line stocks price. Their huge buying power shows up in large volume compared to normal levels. If you use a proper screen or just scan through stocks rising on unusual volume (You can find this information on Yahoo Finance, CNBC, MSNBC, etc ..)
As a side note - try to stay away from stocks with less than 150,000 average daily trading volume. The more liquidity the better. This is especially true if you are looking for just a pure day trade and want to get out of your position pretty quickly.
Big investors also prefer to trade stocks that have plenty of liquidity. To that end, favor stocks trading roughly 300,000 shares a day or more.
Shorting Stock
There is enough on the topic of shorting stock to fill up many volumes. So to do so here in a one page article is to do it no justice. I would however like to point out a couple quick tips to help maximize the gain that can be made when shorting stock. First, never get into shorting a stock because you "think it will go down." Mark my words, "You will lose all your money fast with this mentality. Only short a stock if you have a good reason to do so. Some examples of this might include the following: A stock has just been downgraded by a major analyst with a major company (IE: Steven Smith with Bear Stearns). Do not short just because of a downgrade but do your due diligence to see if there are other weighing factors that are pressuring the stock. Secondly, look for stocks that consistently move due to seasonality. Some examples are as follows: Tech stocks during the Spring, Diamonds (ETF) through the Summer months, etc .. . There is so much more to talk about in regards to shorting stock but we will have to pick it up in the next article.