Stock Market Tips for Consistent Profits
Overview
I’m going to be honest with you. Starting off in the stock market is overwhelming and will lead to you losing money at some point. Over 90% of day traders lose money. The amount of money you lose and how you handle it will determine your overall success in the long run.
One of the most effective strategies to staying in the green is to cut losses quickly and not “bag hold” stocks with the hope they will eventually go up if you realize it’s no longer a good position. Identifying stocks that have a large ( > 5%) margin of profit and a possible loss lower than 1% are the stocks you should be looking for. Setting a stop loss (order that automatically sells your shares at a certain price) at that 1% level or setting price alerts will allow you to continue on with your day without having to be constantly watching your account.
Getting Started
Trading Platforms
There are many trading platforms you can use. I personally use Robinhood to execute my medium to longer term trades and TD Ameritrade’s ThinkOrSwim platform to analyze positions and execute day trades.
TD Ameritrade also offers paper trading for beginners to practice without risking actual money. You can even use the ThinkOrSwim “OnDemand” feature that lets you simulate a random trading day from the past with paper money.
For long term investing, I’ve recently started using M1 Finance, since you can create your own mix of stocks and the application splits your deposits automatically.
Recommended Learning Material
Some of the learning material I’ve used to get started are:
- Ricky Gutierrez’s “Learn Plan Profit” YouTube videos and course
- Warrior Trader YouTube videos
- Unshakeable book by Tony Robbins (great read for long term investors)
The Method
Screening for Stocks
The method I found most effective to stay green in the stock market is finding stocks that are currently a “good deal”. This can be done by using a stock screener on sites such as Finviz or Trading View. It can also been done using the ThinkOrSwim desktop application.
The criteria I use to find good swing trades are:
- Volume > 100K
- RSI < 35 (indicating the stock is oversold based on history — a good deal)
- Last Price over EMA (Length 200)
- Last Price over EMA (Length 100)
- Last Price over SMA (Length 200)
After applying the above criteria, I sort the stocks by volume in descending order and go down the list looking for solid companies I know a lot about.
Since we used the RSA < 35 criteria, you want to check news related to stocks you’re interested in to make sure nothing catastrophic happened to the company that caused the recent dip and that it is only an overreaction or correction.
Entry and Exit
An example of an ascending period that is also a good deal is the one below (CRNT):
You can see how after September, the dips and the peaks are both getting higher. Since the price is well below the last peak, it could be a good time to take a position. In which you would buy in now and then sell after making your desired return.
For example, the current price is around $3.70 / share. The previous peak was around $4.90 / share giving you a difference of ~$1.2 per share which equates to slightly over 30% gains if you bought in at $3.70 and sold at $4.90 perfectly. I personally would buy in at $3.70 and sell some of my shares after making around $0.50 (at $4.20) per share which would be around a 14% return.
Using Indicators
Finding the “best” time to enter and exit trades is also something you will learn with time, but a good way to start is by looking at the RSI and MACD indicators available on most trading platforms such as TradingView and ThinkOrSwim. Below is an example of the same CRNT chart with the RSI and MACD indicators added on:
*chart from tradingview.com
The top section of the image is the normal price chart with Heiken Ashi candles. On the top section you will also notice a blue line following the chart. That blue line is the Exponential Moving Average (EMA) line that shows the overall movement of the price over the past 180 days (length can be adjusted). It is best to buy in once the 180 day EMA is pointing up in an upwards direction and the current price is above the EMA line (means the price is on an upward trajectory).
The second section is the MACD indicator showing the volume of buys and sells with the signal showing the overall trend of the chart. The third section is the RSI indicator (< 30 oversold and > 70 overbought).
Overall combining what you see from all of these indicators can tell you if you should either buy in, sell, or hold off on taking a position.
I personally use mostly the EMA and RSI (length of 14). If you look at a 180 day / 4 hour view of a chart and compare the dips and peaks with the RSI, you’ll see a strong correlation. The RSI is a great way to determine when a stock is undervalued and when it could be time to start buying.
Analyzing Stocks
The criteria I look for before buying a stock are:
- RSI below 35
- 180 EMA pointing up
- Last price above 180 EMA
- MACD line below 0 and flattening out (beginning to point upwards)
- High volume ( > 100K)
Personally with the CRNT stock above, I would wait until the EMA is pointing in the upwards direction before buying in. Even if I were to miss out on some of the gains, I would reduce the risk of the stock continuing to decrease. Always wait for a confirmation of a reversal.
Exception to the above rule
The only exception to the above rule is if the RSI is less than 45 and I know it’s a solid company (ex. Apple, Amazon, Tesla, etc.). Sometimes I will buy in to solid companies when there is a dip, looking at the RSI only since I’ve been watching those companies for a while and know it’s a part of healthy stock movement. These are longer term swing trades and you have to be ready for the possibility of stock continuing to trend down for longer. If I’m really sure about a company and the price continues dropping, I’ll sometimes average down, buying some more shares to lower my average purchase price because I know it will eventually go back up and it’s a longer term trade.
Conclusion
The simple and conservative method described above greatly reduces your risk while investing and can lead to consistent gains that will help grow your account in a safe manner while getting you used to investing.
If you have any questions or comments feel free to leave a response below!
