8 ways to put the odds in your favor
The best advice I can give beginning stock and
option traders is to spend just as much time defining their criteria for the
types of stocks they are going to trade as trying to find the “best†technical
methods or systemic methods.
A lot of traders, myself included, begin their trading careers reading countless
books on technical analysis that run the gamut of “how to draw a proper
trendline†to the more esoteric “planetary harmonics confluence patternsâ€. As
long as there are traders there will be new technical methods spawning each day,
I suppose.
Some of these methods work but even then only seem to work half the time, if at
all.
So the question I had was: â€How do I put the odds in my favor that if there is a
technical bias showing an upside move that the stock will follow thru in that
direction?â€
The answer that I came up with is that if a trader determines a technical bias
for a long position in a stock then it needed to meet the fundamental and
technical criteria to increase the probability of that long position.
In stock or stock option trading it is important to not only define the types of
moves you want to trade (short term, long term, scalping, explosive moves out of
technical pattern, bottom fishing, value investing, etc.) but equally as
important to define the criteria in such stocks that are likely to make such
moves.
I like to trade stocks that make quick accelerations to the upside. Some of the
criteria that I use to find the stocks that are highly probable to have those
moves are:
1) Stock is above its 200-day moving average.
2) Proper stock float ratio
3) High earnings growth.
4) High revenue growth.
5) Low debt.
6) Institutional ownership is less than 25%.
7) Is highly watched by the public and Wall Street.
8) At, or near, their 1-year high and/or all-time high.
I find that by spending time properly defining the types of stocks that I am
going to trade shares in or options on is just as important as the system or
technical setups I am going to use.
By focusing on these stocks and then applying sound systemic and/or technical
setups I find more winners with much higher profits than scanning for stocks
that don’t meet these criteria. I also find that if I change some of the
criteria I can also open myself up to finding new methods to trade them with
each one creating new opportunities.
Spend some time defining not just how to trade but how you want to trade. Then
invest yourself matching your trading methods to trading the instruments with
the right criteria to give you the highest probability of success.
Good luck and good trading.
Billy Williams