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Brute Force

February 4, 2008

I don’t have have any formal background on financial analysis and I started trading in the stock market with only courage and a little capital at hand. It was a mistake, but a mistake I am not ashamed to admit. I realized that I cannot learn any trading skills by heart if I would only learn them in the book pages. I have to experience them… and more importantly, learn from them.

I have developed a very easy technique that gives me a fairly good batting average. This is applicable for short-term traders only.

Step 1: Look for active stocks and avoid those that are thinly traded.

Always do your homework. Make sure to plan your trade, and stick to your plan like a robot — no emotions, please. At night, I would generate reports of the 10 most active stocks of the previous day. Any online broker provides this information. Looking for the Top 10 active stocks narrows down your research, considering that there are hundreds of publicly listed companies in any stocks exchange. I am almost sure that these actively traded stocks have high market capitalization, else, few investors would be trading them. It would also be a good idea to look at the Top Gainers of the previous day (taking into consideration the value traded). By making a match on the top gainers and most active stocks, you are even making your research easier. If you can spot a good match, I suggest that you focus on doing a research on that company. Now, chances are, you are already late with the news… the reason why there is a high volume of trading as well as the gains posted is that there are already some people in the loop.

Step 2: As soon as you have identified your top choices by using the above method, you should focus on doing your research on those companies.

In my short experience as a trader, I noticed that breakouts continue to happen in more than just 2 days. Hence, if you were able to identify a breakout right after that trading day, then, you still have two more days to profit from it. There are no scientific bases (well, none that I know of) on this claim. It is just that everytime I can identify a breakout, the rise in prices always contibue for at least two more days. Second day usually shows a gap up in prices, and third day usually shows continued increase but bo gap in the prices.

So, what to look for the charts of your picks? One, is this the first day of the breakout. If it is, then, you have more chances to ride the wave. If not, then, beware, but still continue the research. Two, check the volume. Is this unusually high, and higher than the previous day? If yes, you are still doing good. And finally, check for news. There are a number of online community that can offer you information (or should I say, speculations) even way ahead those information getting publicized. You can take your hint from there.

Step 3: Plan your trade.

By now, you should have decided if you will buy that stock or not. If yes, then, plan your trade. You should have a cut loss level, in case you are wrong. In my case, if the stock that I bought based on the above method drops to 5% on that day, then, I let go. Otherwise, I will hold on to that stock until I finally get the profit that I want.

Step 4: Make a last minute confirmation before you buy the stock. Then, BUY!

During the pre-opening of the market, buys and sells are posted in your online brokers system. If you can still feel the heat, post at a competitive price. This will allow you to get the cheapest, so to speak, sell amount. Monitor your trade as soon as the market opens.

Of course, this is a brute force system of short-term trading that may or may not give you large profits. I have gain a modest amount of profit from using this method. It is always best to study technical anaylsis to have a more solid basis.

I suggest that you try this, even with a small amount. This worked for me. And if it will work for you, why not try some more?

Note: Image taken from http://www.tradingsynergy.com.

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Posted by ekstranghero at 7:30 pm | permalink

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