3 Ways to Book Consistent Gains

Last week, I recommended a new short-term trade to my premium Bulletin Board Elite subscribers. Despite the fact that the stock was a relatively liquid name, it soon became apparent that some readers were buying above my recommended buy price.

The name of the company doesn’t matter in this example. What’s important is to learn from trading missteps like these, and to add new rules to your trading handbook.

The ideal solution to a potential trade quickly moving out of your range is to wait for a pullback. You have to approach each trade with the buy limit in mind. If the stock is over the limit, you should walk away or watch for an appropriate entry.

I know it’s a new year and the market is ripe for trading — but that doesn’t mean you should set all of your trading rules aside.

Even if you are looking to day trade a stock, it’s never a good idea to chase breakouts. A good trader never worries about missing a breakout. If he’s in, he banks. If he hasn’t bought shares, he knows there will be another opportunity out there before he knows it.

The stock market is full of stocks that move every single day—you can’t possibly trade them all!

Here are 3 pointers to keep in mind the next time you’re looking to initiate a trade:

• Unless you are an experienced day trader, I don’t recommend playing parabolic breakouts that would give you only a very short time frame to get in and get out. Instead, I recommend opting for the more orderly plays that afford you some breathing room. These stocks don’t go straight up. They move up steadily, consolidate or pull back a bit, and then continue their run.

• If your broker gives you access to real-time charts, I highly recommend looking at a 1-minute time frame when you’re planning your trade. If you don’t have real-time, you could even look at the 2-minute and 5-minute time frames on Google Finance to get an idea of how a particular stock behaves. Watch when a stock spikes, and then plan on buying the dips near intraday support. This can make all the difference in the world when all is said and done and you’re counting up your gains.

• You should always define how long you plan on holding your short-term trades, and what your parameters will be for selling— for a gain or a loss.  In most instances, I look for stocks that could run anywhere between a couple of weeks and a couple of months. Most of these are purely momentum and technical plays. Sometimes, I hold a short-term trade longer than three months. That’s because I want to be able to ride the trend to its fullest potential. If the market doesn’t give us a reason to sell, then I will not sell. Letting a winning stock run, instead of selling and moving on to other options, saves commissions and lets the gains pile up.

If you re-read the tips I just outlined, you will see that each one has a profound affect on the others. You have to follow all of your rules in order to book consistent gains. Just one miscalculation—like chasing a stock that has already experienced a significant breakout—will ultimately have a negative affect on your final profits. Tighten up your trading with solid planning and entries, and you should immediately see a difference.

Sincerely,
Greg Guenthner
Penny Sleuth

January 12, 2011

3 Ways to Book Consistent Gains was originally featured in the Penny Sleuth. Check out Wall Street’s 5 Most Profitable Penny Stock Patterns Report.

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