Hi guys,
since my last two posts have received over 50 thumbs up, i can only speculate that many people are getting something out of it so i don't mind embarrassing myself and to post another article up today.
my first two posts have talked about how to avoid total loss and the common mistakes newcomers encounter when they start out trading
this post might be helpful to newcomers with how to profit from these markets and what to look out for. I am no investment advisor or technical expert (there are far greater chartists out there including
@mitta,
@Dr.Seuss,
@accaeric) so i wont dig deep and put out charts
there is also no "one way" to make money, there are many factors that require one's ability to apply appropriate strategies in different environments and to make real-time decisions based on news and events. One must also apply multiple strategies to make consistent returns
one must also understand, to make abnormal returns you need to take on abnormal risks
specs are specs, a "dream" that requires constant injection of money to keep it alive. that "dream" may at the end amount to nothing
so if you understand what a "spec" is, then you need to understand that a spec needs to be treated as a spec. That is, when a stock makes abnormal returns, as a trader you need to take some money off the table and re invest those profits into the next "story."
1.
Breakouts
to profit from a spec, you need a few key elements: they were introduced to me during my early trading career: volume, momentum and money flow.
the three combined, then you can expect what we call a "break out." A break out is when a stock trades above its usual trading pattern or range. Say with RNO for example, the break out was @ 4.7c (the 52 week high) once that cleared then it climbed to a daily high of 5.5c (17% return). I tend to enjoy buying stock below the break out price to ensure that i realize maximum profits. That is, i would buy below 4.7c, in this case i bought at 3.8 and buy on the way up closer to the break out target and sell some around that level.
so to spot a break out, you look at a stock doing abnormal volumes, you open up your chart and monitor the stock price and make a decision whether it would break above its 52 week high. At earlier stages, you can look for break out of a daily price range, a weekly price range of a monthly price range all depending on how you view that particular trade.
2. 10c trades
This is a very easy trade and very easy to explain. A stock that breaks out of its usual trading range and heads towards that 10c level, has a high probability (~60-70%) chance of hitting 10.5c
think of it this way, a 10c stock offers 1% downside for a 5% gain. The only type of set up that offers a very compelling risk/reward scenario.
Everyone knows this, and hence would most likely buy below 10c and sell around that 10.5c (or higher) to make the most profits whilst taking on less risk.
3. Volume exhaustion
This is my favorite trading set up because it makes me the most money. I never like to pick a "falling knife" as i never know when the selling will stop. But what i love to pick, is seller exhaustion. To spot this form of trade, you look for a "falling knife" and monitor its volume for a few days and when you spot that the volume has dropped off substantially, you are most likely going to see a rebound the following day.
Here is the scenario. ABC stock falls like a knife, say:
day 1: falls -40% on 50m volume
day2: falls -20% on 35m volume
day3: falls -10% on 15m volume
each day it falls on lower volume the lower the risk posed to you. Day 4 would be very important since its a telling story of how the next few days the stock is likely to behave.
say day4: stock opens up +5% and breaks out of day3's daily high, on higher volume than day3, then high chance that the stock has reached bottom.
this trading set up could make me 10-30% return in a day. my best trade using this set up was with MBN, i made a 300% return over a week.
4. Fundamentals
Fundamentals is also a very important aspect of trading, equally as important as technical analysis or market behavior.
A stock is an actual company, that has offices, staff and a product or dream. So its fundamentals, (financial, products, health etc.) is very important to determine whether it would make money or not which translates into an increase in the share price.
5. Follow the money
Time and time you will see specs with trades greater than say $50k per order. That is not your regular HC trader who probably does($5-20k per trade). When you see these big orders, you follow them and buy. They are most likely from large brokers or institutions who have done their research and now buying the stock. That is why reading the "course of sales" is very important.
For example, with RNO two trades of 4.5m @ 4.7 is ~$423,000 that's not your regular HC punter that's what we call "big money." or "big fish." If you scan the course of sales on RNO on Friday, you would see a lot of institutional buying orders >$50k
There are many other stocks, not just RNO that you can scan to find this type of activity, i just came across RNO on Friday.
At the end of the day, not only one strategy works, as a trader, you need to apply multiple strategies to work for you. The most important aspect of trading successfully is not how much money you make on one given day, week or month but how to make returns consistently. If you can make $100 every day for 365 days, or $1,000 a week for 52 weeks, is better than making $10k a day and nothing the next.
Happy trading my friends.
ps: no time for editing so sorry if some parts don't make sense
and feel free to give feedback, as it helps me learn too!
Cheers,
TraderRR
