There are many people who trade actively in equity markets. Some people trade for a living and others trade for part-time income and some others trade for speculation. Regardless of your objectives, you need to master few strategies to become successful. Many people fail at trading stocks, as they do not spend enough time to learn the basics of trading stocks. This article outlines 6 clever ways to trade stocks in a timely manner.
1. Cutting Losses Short
This is the number one strategy that can be applied in any market. You must select your exit price on the downside as soon as you open your trade. For example, if you purchased 100 shares of Netflix at $90, you must also place a limit order to sell the stock if it falls below a certain price, say $85.5 per share or by 5 percent. This is very important, as it will cut your losses and boost your overall profits in the long run. Remember that you will only lose 5% each on 5 trades while your profits from a single successful trade can easily erase the losses from each of these 5 trades.
2. Always trade the best stocks
This is easier said than done. However, you cannot ignore the truth behind this strategy. You must spend time researching and finding the best stocks with the best fundamentals, stellar earnings and strong technicals. This will ensure that your losses are limited in a market wide sell off. The best stocks tend to wither most of the major market storms.
3. Limit the number of trades
Many traders make the mistake of trading frequently, thinking that it will lead to more profits. Nothing could be farther from the truth. Frequent trades indicate that you are trading without a plan and you are simply responding to the day-to-day gyrations of the market. This will eat into your profit potential by spending more on commissions and more time trading than needed.
4. Always have a plan and follow the plan
You must have a plan in place before you open any position. You must follow the plan until you exit the trade. This will help you stay in the trade regardless of whatever the market throws at you on a daily basis. Returnstream LLC said, “A trading plan can be as simple as determining a suitable opening price, placing the appropriate stop loss order and selling when you hit your profit target.” You should not deviate from your plan whether you are a day trader or someone trading for the long term.
5. Follow the Trend
The saying “trend is your friend” aptly summarizes the truth in following trends in the stock market. If the market is in a bullish trend and if you are trying to short the market, you will lose money. It is easy to monitor the major indexes and see whether the market is in an uptrend or downtrend. You must make your trades based on the current market trend. This is more important for short-term traders. However, long-term traders must also watch the overall direction of the market before entering into a trade.
6. Selling upside calls
If you plan to hold your stocks for more than a week, then the chances are that you could sell upside calls and collect option premiums. This is a very conservative options strategy that can be employed to make additional returns. However, your profits will be capped if the underlying stock makes a substantial upside move. For example, if you own 100 shares of Apple at $90 per share, you can sell the weekly 95 calls for a premium of $1 per share. This will give you $100 if the price of Apple shares remains below $95 at the expiration of the weekly options. If Apple stock rises above $95, then you get to keep $100 from selling the calls, in addition to the profit of $5 per share on your stock.
There are many strategies that you can follow to become successful in trading stocks. You don’t need to follow hundreds of strategies. You will need to master and follow only a handful of strategies such as the ones listed in this article.