3 Powerful Stock Strategies for Beginners

8/12/2019 3 Powerful Stock Strategies for Beginners

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Copyright 2013 SingaporeWealth.com

3 Powerful Stock StrategiesFor Beginners

Contents

1. Critical Point of Entry Strategy ......................................................................................................... 22. Trading Breakouts From Consolidation ............................................................................................ 43. Inside Days Trading Strategy ............................................................................................................. 54. Range Breakout Trading Strategy ...................................................................................................... 6

5. Greatest Money Management Strategy.............................................................................................. 7Compounding Your Gains ..................................................................................................................... 9The 2% Rule........................................................................................................................................ 10Money Management Calculator .......................................................................................................... 10

By SingaporeWealth.com

Disclaimer:

There is a very high degree of risk involved in trading. Past results are not indicative of future returns. SingaporeWealth.com and all

entities/products affiliated with this site/product assume no responsibilities for your trading and investment results. The advertisement,testimonials, published accuracy, and all other features are for educational purposes only and should not be construed as investmentadvice. Information on the accuracy of the SingaporeWealth.com is a statistical data collected over a period of trading days, based onrules defined in the SingaporeWealth.com. We do not warrant its completeness or accuracy, or warrant any results from the use of theinformation. Your use of the SingaporeWealth.com site/products is entirely at your own risk and it is your sole responsibility to evaluatethe accuracy, completeness and usefulness of the information. You must assess the risk of any trade with your broker and make your ownindependent decisions regarding trade entry and exit. Trading Stocks, Options, CFDs, Warrants, Futures, and other financial instrumentsinvolve risk and are not suitable for all investors.


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1.Critical Point of Entry StrategyWhen a stock price action crosses a support level or resistance level that is accompanied by a rise involatility and a significantly higher volume, the underlying asset is bought with increased momentumand is known as the critical point of entry.

You can spot a breakout by understanding various patterns of charts, resistance and support levels, aswell as other technical analysis indicators.

Some factors to think about:

You will only be trading with companies showing growth. Basics do matter when it comes tocapturing major trends

Technical analysis is a must to quantify the risk Understand which sectors of the market are leading

Below you will find some examples of major trend breakouts.


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2.Trading Breakouts From ConsolidationTrading breakouts from a range contraction or period of consolidation is one of the greatest strategiesfor stock traders and smaller stock traders.

The basic idea is this: The markets move from times of high directional volatility and activity to timesof rest or consolidation. This cycle will repeat itself over again in nearly every volatile, active market.The consolidation breakout strategy looks to entering the market at the point of inflection where themarket is moving out of this consolidation phase and into a trending phase.

Below is an example on how to identify these consolidation points:


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3.Inside Days Trading StrategyAn inside day is known as a day where a stock's daily trading range is contained within the tradingrange of the previous day. Basically, the high and low of the day do not exceed the high and low of the

previous day as indicated by the candlesticks below:

With the strategy of inside day trading, you need to notice at least two inside days, since seeing just onewill not be enough. The more inside days that you see, the better, since it will increase the likelihoodthat the breakout is going to have a follow through. This trading strategy is best when applied to dailycharts since the longer the duration of time, the more significant the breakout will be. The candlesfollowing show what two inside days would look like (the candles may be green or red):


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4.Range Breakout Trading StrategyRange breakout trading strategies are usually used by participants of the market trying to get involvedat the beginning of (what they are hoping will be) a significant move in stocks. Range breakoutsusually lead to volatility expansions with potential for those trading to define risk before it happens.

Range Breakout Trading Entry Criteria

One of the best entry strategies would be to trade in the direction of the trend that is near term and useprice action confirmation as the criteria for entry. The chart below will show a recent example of rangetrade breakout. First you will need to examine the set up:

Stock needs to be moving in a trend that is clear just before the phase of consolidation. Try tolook for this since momentum will generally come before price.

A clearly shown range is formed with no spikes moving out of the range lows or highs (demandand supply temporarily in balance).

A false counter trend move will come before the actual trend breakout (not important but canhelp)

Price action confirmation will then come before the actual breakout


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5.Greatest Money Management StrategyEven with some of the greatest stock market strategies and tools, learning how to be a profitable traderwill take time and money. A lot of traders make the mistake of thinking that a magical method will helpthem make money without any effort. Fear, greed and the need of always being right will pave a path to

failure in the stock market. Learn what trading strategies are for the stock market and moneymanagement strategies that are going to work best with you and your level of risk.

One of the key factors of a solid investing system of the stock market is watching the stocks during theinitial 15 to 30 minutes after the market has opened. The ones that are holding the gain (or the loss ifyou happen to be shorting) for the initial 15 minutes to 30 minutes and are still under the increase of3% are considered to be great candidates.

Make sure you never trade any more than 10% of your entire stock trading account in a singletrade. As an example, if your trading account happens to be $25,000, then your maximumamount for a single stock should be no more than about $2,500.

Use a 10% mental stop loss, and a 25% hard stop loss for those stocks that exceed $10. Forstocks that are under $10, you need to use more loss like 20% and 35%.

Mental stop losses mean that you are taking a look at your end of the day portfolio and noticing if thereare any stocks down more than 10% since you had purchased them. If this is the case, then you willneed to carefully watch that stock, read about the corporate news, as well as see if there are anysignificant changes that may be causing your stock to lose it's value. Hard stop losses are known as theactual stop orders that are placed with the help of your brokerages, and these are your safety net for anysurprises that the market has in store for you. (If you need an example take a look at the 9/11 disaster.)

Use the profits that are taken at 40% or above. When your stock has reached a 40% profit, you need to

take some of the profits, and leave the rest to follow that course. This way you are able to secure a littlebit of your beginning investment.

When you are above a 15% profit, you will need to move your stop loss to the point of break-even, andcontinue to do this until you have exited the position. This is known as trailing stop. You should alsothink about initiating this type of strategy after your first gain of 15%.

One of the greatest aspects of managing your money is understanding the easy mathematics of gainingand losing: If you possess a trading capital of about $10,000 and you are losing 50%, it will not beenough to gain 50% to break even. After this loss of around 50% you will now only have $5,000. Inorder to break even, you will need to make 100% with the remaining $5,000 in order to reach your

initial capital of $10,000 once again. You will then realize how important it is to protect yourselfagainst these losses.

You will need to use margin stock trading very wisely, otherwise you might end up losing more thanyour first investment. Margins are probably the best way that you can multiply your first investment inthe stock market. However, if this is not followed closely and done correctly, this kind of stockinvesting strategy may result in large losses very quickly. A famous trader at one time stated: Bigpositions alternatively mean big issues.


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You should start out small and start to build up both your trading account and your confidence bothsurely and slowly. Don't try to become as rich as you can in just a matter of time. Consistency is themain key here. If you have a good amount of consistent trade returns after a long duration of time(usually longer than a year) and you have been riding through the durations of down times in themarket, you will be able to start slowly increasing your exposure. This method has been proven to workin various markets, however it is your mindset that will need to be trained.

Diversification: If you possess 20 stocks and one of the selections that you have suddenly crashes andyou have a total loss due to that stock (this is a very rare case but it could occur) then you will onlyhave lost about 5% of your trading capital. This isn't too bad. You will still live and can continue withyour trading without having a lot of damage. If you have a great strategy that you are working with,this will work, otherwise your profits are going to take more of this with time. If you only have about 2stocks then you have lost around 50% of your trading capital. Just one more time and you are going tobe totally out.

Risk Control: If you are just beginning, then it is suggested that you begin with a proper system oftrading. You need to keep good records of all your trading stocks on paper and record all the mistakesand emotions that you are going through. After about a month or longer begin small with some realmoney. Keep it small. Remember that big positions generally mean large issues. All of the hard workhas now been done for you and it is all up to you for the rest.

Make sure that you are using limit orders to both enter and exit your position. Market orders will beable to guarantee you a fill, but they won't guarantee the price.

A limit order that is just below the prior close would generally be filled about 95% of the time. Why isthis? It is because a stock usually does a retracement during the initial part of the day.

If you are unable to watch the market all through the day, and there are a lot of people who can't, then astock market order would be able to take care of that. However, you need to understand that the priceyou might be paying when your order is executed could be much lower or higher than what youthought it would be.

It is strongly encouraged that you use limit orders, since sometimes the distance between ask and bid isvery large.

You have many different choices when it comes to exiting a position when you are working with astock investing strategy or trading system for stocks: 40% of the profit is taken, 15% of a trail stop, oryou can just choose to wait for the next signal that the market sends. It will all depend on your rewardand risk tolerance that is associated with your strategy for investment. Some investors would prefersmaller draw-downs and a smaller gain; others would like to risk more for a much better reward. It is

all based on your personal decision and a portion of your own portfolio management and investmentstrategy.

For an example, say in your performance data you used a 40% of the profit taken and a 20% stop loss,and if there were none of those conditions met throughout the lifespan of a market trend, you wouldneed to exit when another one of those signals had appeared in the market.

The greatest mistake that a lot of investors would make when they are using a trading system, would beto follow it blindly. The system will work that the way that it is, however there are many different


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variables that you will need to think about:

The commission fees of broker's The fill price The liquidity of the stocks that are being traded (usually the stocks that are being traded have an

average that is much more than 100,000 shares each day)

Intra-day draw-downs The size of the trading account: some investors might not have enough capital in order to

purchase all of the stocks that are proposed, therefore they may be picky about a few of themand this might lead to large losses for the portfolio of your stock trading

Trader's psychology: all individuals are very different, and investors are the exact same). Oneinvestor may be comfortable with the idea of a gain of 10% for each trade, but there are somethat aren't comfortable with taking any profit that is less than 50%

Make sure that you keep in mind, the previously mentioned suggestion would not work with allstrategies of trading. For example, if you are following with the long term strategy, you need to bemore liberal with both your profits and stops.

Compounding Your Gains

This means, the phenomenon of your re-invested earnings generating you more earnings.

Compounding your gains is generally a very extreme concept that you will need to fully use: this ishow all of the greatest traders have made their earnings.

The fundamentals of compounding are actually very easy: you begin, for example, with a portfolio that

has about 5 stocks, with each one of them being worth $1,000. After a little while you will sell a stockin order to get a gain of about 35%, so the cash that you now have available and invested is now $1,350(or even more if you are using a margin), which you are going to fully invest in a different stock, andthis cycle will go on.

With time, your portfolio will not be composed of stocks that are equally weighted, as you are going tobe using all of your investment power to start purchasing new stocks. This concept has now beenapplied, as well as in your performance data: you are using compounded gains.

You should ensure that you are asking yourself these questions all throughout your money managementstrategy:

How much money should you be risking on a trade? How many shares should you be purchasing?

A good strategy or system for trading is going to be completely worthless without having a goodmethod of managing your money. You obviously like trading your stocks or you wouldn't be in thiscircumstance. You like when you are making good money in the market? Well, you won't be able tohave any money to trade with if you are not following a good management practice with your money.


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Your number one goal as being a trader needs to be preserving your capital so you may stay alive justlong enough to have some great winners that will cover the cost of you both losing trades as well asmaking a good profit. You may accomplish this through a good, well-thought money managementstrategy.

The 2% Rule

The majority of traders will agree that you should not be risking any more than 2% of your initialtrading capital on just a single trade. The market of stocks is generally very random. Nobody is goingto tell you about this, however this is the true reality of trading your stocks.

Therefore, no matter how good the chart is looking, there is a good chance that the stock is not going togo in the direction that you desire and you will be losing money on this trade. How much money areyou going to be losing if this occurs?

On the very first day of each month, you will need to look at the total quantity of money that you have

in your trading account. As an example, let's just say that you have about $30,000 dollars. Two percentof this total is around $600. This is going to be the maximum amount of money that you will be able tolose on a trade.

Money Management Calculator

If any of this is a little confusing for you to understand, you might want to think about getting yourselfa money management calculator like the one shown below:


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There are many different models of money management that you may select from. For the best results,it is recommended that you use the fixed percent risk model. On the right side of the moneymanagement calculator, you would need to type in the total quantity of money that you will have totrade with. As an example, let's use $20,000. Underneath that, you would type in the amount that youwill be willing to risk for each trade. For the example, let's use 2%.

On the left side, you will need to type in the total amount that you are going to purchase the stock at aswell as the price that your stop loss order will be. For this example, if you are purchasing the stock at$20.00, then your stop loss will be around $19.50. Click on calculate and this will tell you about howmany shares you should be buying. In this example, it would be 800 units to purchase.

You have now been provided with all of the keys that are necessary to becoming a smart and successfultrader, now it is time that you use them wisely.

3 Powerful Stock Strategies for Beginners

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