TradingMarkets 10 Trading Rules: #7 – If You Buy Stocks, Buy Established Companies
This basically ties into the same philosophy as Rule 6 which is to try to minimize overnight risk. Overnight gaps in equities occur all the time. But they tend to occur more in less established companies, especially those in the technology industry.
Therefore in order to lessen overnight risk, look to trade the better, more established blue chip companies, especially those found in the S&P 500. For those of you who are willing to assume a bit more risk, you can expand your universe to the Nasdaq 100 companies.
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To read our series “TradingMarkets 10 Trading Rules”, click here for Rule #1, Rule #2, Rule #3, Rule #4, Rule #5 and Rule #6.
You can also read the next installment in our series: Rule #8 – The Relative Strength Index: A Short Term Trader’s Best Friend, by clicking here.
David Penn is Editor in Chief at TradingMarkets.com.