Trading stock markets is one of the oldest and most popular methods of trading. Despite having been around for a long time, this doesn’t change the fact that many new stock traders have difficulty in making the move to a profitable trader. Stock trading is easy, or so it seems. Just pick a stock, place a trade and hope for the best. This is how most traders approach the stock market, but the truth is this style of trading stocks is akin to gambling. Are you looking for a real way to improve your odds when it comes to the stock markets and increase your chances of having winning trades that can be sustained in the long run? Any new stock trader needs to pay attention to both the trend of the market and the correct place to enter and exit trades. I’ll show you easy this is to do, once you know how.
Stocks, like most financial markets, have a tendency to trend. Stocks in general tend to trend up. This doesn’t mean that there will be periods where stocks seem to be in a constant downfall, but by their nature stocks trend up in the long run. Regardless of this, any stock trader needs to first correctly identify the trend in the stock they plan to trade. There are a number of ways you can do this. The most popular is to use a 150 or 200 day simple moving average. When price is above the SMA, the trend is up. When price is below, the trend is down. This is great for beginners as it makes trend identification extremely easy. However, a better method I’d recommend is that of gauging the trend by using nothing more than price action itself. This will take some time, and beginners may find this extremely difficult to do. If you show your stock chart to any six year old without indicators and ask them if the trend is up or down, there is a very good chance they’ll be able to correctly identify the trend based on price action and nothing more. They can do this because they know little to nothing about trading and their judgment hasn’t become clouded due to an overload of information.
Once you’ve correctly identified the trend, you need to find an optimal place to enter your trade. While in theory you could just enter anywhere, it is recommend that you find a spot where the price of the stock is discounted. What does this mean? It means that if the trend is up, you are looking to enter the market at a point which is lower than where price currently is. This basically means you need to enter the market on a pullback. The opposite is true for when the trend is down. You will need to enter when price has pulled back and is at a level which is cheaper than what the majority of other traders paid. Getting into the market at a discount level means you increase your chances by buying cheaper than everyone else. This means you stand to gain more profit and give yourself a trading edge.