I don’t know if you’ve ever considered trying to make money in the stock market, but I’ve been day trading in the stock market off and on for almost twenty years and I love it! I can’t promise that these tips will work for you, but they should give you something to think about. But remember that these ideas are for educational purposes only. We both know that if you make any money off my tips you ain’t gonna cut me in for a slice of the profits, so if you lose some money, you can’t go blaming me, neither! Them’s the rules!
First of all, ‘day trader’ has become kind of this umbrella term for any short-term stock market trader. A true day trader is someone that only trades during the day and cashes out entirely before the market closes. If you’re still holding onto stocks after the closing bell, you’re not a day trader. If you hold stocks for anywhere from a couple of days to a couple of weeks, you’re really more of a swing trader, which is how I would characterize myself.
Now, if you’re just getting started, there’s a whole heap of beginner advice up on them internets about getting started in the stock market. Google and YouTube are great places to start, but just try to find current info. Stock market advice from even just a couple years ago may be great, or it may not be. In the market, some things never change. Then again, some things change all the time.
Before you can play the market, you’ll need a broker and some sort of charting software. I use Fidelity as my broker and TC2000 as my charting software. There may be better/faster/cheaper ones out there, but these are the two I’ve been using for years and they work fine for me. Fidelity charges about five dollars to buy and another five dollars to sell a stock, and TC2000 (I use the Silver Edition) costs about fifty dollars a month. There are probably some really good free charting software websites out there if you don’t want to spend the fifty bucks, but nothing that I know enough about to recommend. Maybe I’ll do an article at some point later about free charting websites or software.
Obviously, it’s beyond the scope of this article to tell you everything you need to know about trading in the stock market, but here are some very basic rules or guidelines that I follow when trading. More to follow in later articles!
One of the first things I look for are stocks that are moving in a solid upward direction for at least about the past six months to a year. The market moves in cycles and will have its ups and downs, and so even the best stocks can drop if the rest of the market is dropping too. This is natural. Just compare your stock to indexes like the Dow Jones, the S&P 500, or Nasdaq. Your stock really should be doing at least as well as they are over the past six months to a year. If the S&P 500 is up ten percent over the past year and your stocks are only up five percent, maybe you should look for some other stocks.
To find these stocks in TC2000 is very easy once you get the hang of it. Just set the time-frame to “Daily,” select the index (such as the Nasdaq 100 or the S&P 500) and scroll through them using the arrow keys on your keyboard. It only takes a couple of seconds per stock to figure out its general direction. If those instructions made no sense at all, read the manual or watch the tutorials. If you don’t have the time or energy to learn the very basics of your charting software, then this is probably not the right line of work for you.
When choosing stocks, I prefer companies that actually make a physical product, or own something tangible, rather than just service companies that just move money around. I just don’t know enough about banking/finance/economics to tell if a company like Enron or Lehman Brothers is really a safe bet. They sure weren’t. In other words, I just don’t know how to value them. I prefer companies that actually make something, companies such as John Deere or Harley Davidson, or that own something, such as a real estate companies that actually own land and/or buildings. It’s not that these companies can’t go bankrupt, it’s just that I don’t see them doing it as quickly. There are lots of exceptions to this rule, but I sleep better at night knowing John Deere still has ten thousand tractors in their warehouse.
One thing I don’t like to do is buy a stock that will have to make a brand-new, all-time high before I turn a profit on it. What has worked better for me is to find a company whose profit is making regular all-time highs and then buy on the price dips. And there will always be price dips. No stock price ever goes straight up, straight down, or straight sideways. For example, if the XYZ Company is having a great year and consistently going up in price and consistently making new all-time highs, I’ll wait until their stock price dips about three percent off of their last all-time high, right around the 97% point. Then I’ll buy the stock and hold onto it until it’s at about 99% of its all-time high. Then I sell. This quick 2% profit might take a few minutes or a few days. And two percent profit every few days is a very nice return!
Another thing I look for are stocks that are kind of in the Goldilocks zone with their share price. Neither too cheap nor too expensive. If a company is selling for two cents a share, there’s probably a very good reason for that. Think about it. These low-priced stocks are often referred to as ‘penny stocks’ or ‘pink sheet stocks’ and should be absolutely avoided by beginners. You’ve been warned!
Also, stocks that are super expensive just don’t go up in price as quickly as the lower-priced stocks. A $5 stock will go to $10 faster than a $2500 stock will go to $5000. Not sure why, but that’s just the way the market works. If you’re looking for hard and fast rules, maybe consider stocks in the $5 to $100 range. This is just a rough estimate and you should not rule out any stock simply because of its current share price. Except for the penny stocks. Stay away from them! Twice now you’ve been warned!
Final bit of advice, don’t lose money! That sounds incredibly simplistic, but it’s true. If the trade turns against you, get out ASAP. Take the tiny loss, figure out what you did wrong (if anything), and move on to your next trade. Waiting around for the trade to reverse direction and start heading back up into the money is the quickest way to blow up your account. And that is not something you want to do. One of the best ways to protect yourself is to use what are known as “stops” or “stop-losses,” which are set points at which your stock will automatically sell, limiting your losses. See Google or your broker for more info on them. But use them!
Anyway, that’s all I have for now. See you next time!