I am going to discuss 3 strategies for individual stock trading that have proven to be profitable for me. First, let me say that I am NOT a professional broker and I am not telling anyone to buy or sell any specific stocks. I have been studying the market for about two years and I like to read charts.
1. Be aware of trending stocks-that is a stock that is trending consistently for at least 10-14 days in the same direction, either up or down. If the stock has proven fundamentals, and is in an upward trend, you can safely consider buying call options 2-3 months out and making money. Same goes for the downside, if it is trending consistently down, you can buy put options 2-3 months out and make money.
2. A guideline for understanding the trending stock is to understand moving averages. The 10-day moving average is a really good indicator when you are looking at a chart. If the stock is staying right above that indicator, it is in a good, steady upward trend. However, if it is staying consistently under the indicator, it is confirmation that it is in a strong downward trend.
3. Another criteria for confirming a trend is volume and cashflow. If the volume of an uptrend is high on the days the stock moves up, it is a strong indicator along with large amounts of cash flowing into that stock, that there is a strong trend. Same goes for the downtrend, if the volume is high on days the stock moves down and cash flowing out of the stock, it is a strong downtrend. The pullbacks on either side, up or down, should be light volume.
These are just a few tips on beginning to understand trends of a stock. On a sidenote, stocks will typically trend in the direction of the market as a whole.
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