Now that you have assessed the stocks that affect your stock the most, you have to take into consideration the much larger picture, the overall market. Wall Street is often a large cesspool of herd mentality. When the market sells off, around 75% of stocks follow suit and also sell, the same is true about when the market goes up. Now there are exceptions, but you want to give yourself the best chance for success. So if the market is in a general uptrend you should be leaning more toward plays going that way.
You should now have the entire basis you need to pick a stock, now you need to determine your entry. I have found that the best way to do this is to break up a predetermined amount of money, and buy in pieces. I tend to buy on strength, not weakness. The reason is, if a stock is unusually weak, it normally tends to continue down, not trying catch the "falling knife" is a good way to save you money. If a stock is not strong, there is no reason for you to try to change the trend and hope your right later down the road. Sure you may miss the lowest entry possible, but it is my feeling that you will miss even more big losses.
The final tip and probably most important is to PROTECT YOUR MONEY. Wall Street doesn't care if you go broke; you have to take an active role in your own future. When you have a great gain, take some profits, when a stock is weak, SELL IT. Consider all gains your money. For example, say you buy a stock at ten dollars and now it's at twenty and beginning to pull back. You have to assess the situation like you just bought at twenty, because that is your money! Don't look at it and say "well ill just hold through this dip because I have a large gain", as a swing trader you have to realize that dips can become tops in a hurry. If it really is just a dip you can buy it back again when it is showing strength, if it is the top, who cares, you sold right?
This process requires a bit of time being spent, but considering the amount of money you stand to lose if you do not do it, it is well worth it. Trading isn't easy and it isn't for everyone, but once you equip yourself with the proper tools and knowledge, you have a better shot than most.
Mr. Jenkins is a full time trader and author at : http://www.equitychallenge.com |
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