February 4, 2011

Smart but Risky Trading

  • Identify stocks that have good fundamentals (decent balance sheet, steady improvement in eps or constant over multiple quarters etc)
  • Look for those with high short interest among these.
  • Now look for news, estimates and clues etc. Read general news in the sector, other news that might affect the business's future earnings etc.
  • Figure out which stocks might have a higher chance for surprise earnings. Look also at technical cues from volume trading
  • Pick the few best ones, decide a good trading strategy for all scenarios: Rise, Fall and Sideways.
  • Once the plan is ready, then and then only, trade the plan.
  • Do not trade it in the first 15-20 mins of the day (too risky).
  • Make sure triggers are met. Also make sure that your stop losses are in place with limit losses

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