Stock Trading Tips
This third page on the topic of stock trading tips is a continuation of my other tips and day trading advice pages. These tips are a compilation of various things I have learned over the past couple decades. I hope that by reading them, you'll perhaps minimize the mistakes that you might make during your trading journey.
- Don't overload your charts with indicators. Does this chart on the right look like yours? So many indicators, that you've got the most important information -- price -- so squeezed up at the top, that you can barely tell when it's moving. If you're doing this, take a look at the indicators that you're using. Are they all momentum indicators...just a different flavor? Do you really need more than one? Try stripping the chart down to only what you really need for one day and see if that helps.
- Don't chase a breakout.
Plenty of times you'll be scanning stocks for trading opportunities and you'll notice a perfect looking breakout, just a bit too late. You didn't have a buy stop on that particular stock and it's rocketing upward on huge volume. I know, it's very, very tempting to jump on board, but it's too late. The train has left the station. You can, however, wait for a possible pullback to the breakout point which will then be support. It's reasonable to buy at this level to minimize risk. Otherwise, if you chase the trade the stop would need to be too far away, resulting in an undesirable risk to reward trade.
- Use a day trading platform that can execute Auto-Stops. Major stock trading tip...Some trading platforms allow you to easily set up your trades, so that when you buy or short a stock, a stop is automatically placed at a predetermined amount or percentage away from your trade. That way, all you've got to do once in a trade is either watch it progress or adjust the stop manually on the chart to a better location. Personally, I wouldn't even consider using a trading platform today unless it had this feature. Any trade has the potential to whipsaw back on you very quickly. With auto-stops, your stop order is placed and you're good to go.
- Don't trade out of boredom. Oh, you don't think you'll do this? Believe me, day trading can be like watching paint dry. Depending on strategies used, you might be sitting for hours waiting for a set-up to trade. You don't make any money unless you're in right? That's exactly the thought and emotion, you'll have to control. Be patient and wait for the set-up to come to you. Otherwise, you are going to make all kinds of stupid moves, just to be "IN".
- Trade more than one strategy. This stock trading tip is for after you've gotten through the learning stage of trading your first strategy/system and have gotten very comfortable with your trading platform. At this point you might consider trading other systems to diversify methods. Different trading systems requiring different set-ups and exits will not only keep things more interesting, and allow a higher frequency of trades, it allows you to not be susceptable to the drawdown of any one particular system. Very few systems will go an entire week straight without a bad day. The general idea with trading multiple methods is to try to eliminate or or least smooth out deep drawdowns on the equity curve (and on emotions) that any one system by itself is prone to have. Of course, part of the trick here is to trade systems that have a low correlation to each other....and that's not always so easy in the stock market.
- Stop switching trading strategies. If you've done your homework, you're satisfied that a system will produce profits for you, and you're familiar with what the drawdowns and losing streaks might be like. Then trade it on a simulator first to see if you can make sim bucks. But, don't do all that work only to ditch the system after several frustrating losing trades. If you know it works, stick with it and give it a chance. Constantly switching methods can turn into a really bad habit and not accomplish anything.
- Be aware of what the indexes are doing. A majority of stocks that comprise the S&P 500 will move in a somewhat correlated fashion to the index. Some will do there own thing the entire day. If trading off a list of S&P 500 stocks, it's a good idea to keep a chart of the index or the ETF SPY up. Sometimes the index can give you a heads up on whats to come shortly later in a stock that's lagging.
- Commissions - Never more than $.01 per share. If you are paying (in USA) a broker more than one penny per share commissions, you are paying too much. For example, to buy 100 shares of stock you should not pay more than $1.00. To buy 1,000 shares you should not pay more than $8.00 to $10.00. If you are, take this stock trading tip and shop around until you find another day trading brokerage.
- Don't focus on fundamental analysis for day trading. It's fine to use it to screen for stocks with a strong uptrend on a daily time frame, for the purpose of applying technical analysis later. But, don't make the mistake of buying stocks on an intraday time frame solely because they have a good earnings per share rank. Except for possibly screening as mentioned, fundamentals don't really have much to offer a day trader.