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.
If you find these TradingMarkets Rules worthwhile, then take the next step and learn more information about our Swing Trading College. The Swing Trading College is one of the most popular courses we have offered and a variety of traders – from real-world professional money managers to end-of-day part-timers – have taken advantage of our 14-week course to give their short term trading the extra tools – or major overhaul – they need in order to profit in volatile markets. To learn about the Swing Trading College in greater detail, Click Here.
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.