Two famous traders discuss entry and exit points and stock market tips are discussed. They also answer a question about how to find good momentum trades.
David: We have been asked a question about entry points. ‘Every entry I make, the trade seems to go against me. I’ve tried every indicator known to man and different timeframes. I’ve tried other people’s systems and they don’t work either.’
Stuart: It’s often not the entry that’s at fault. Often it’s the exit that’s at fault. We may be using an inappropriate exit and not allowing the conditions that got us into the trade work their magic and do what we want them to do for us in the trade.
Perhaps the entry is too complicated and maybe they were changing it or shifting it because it was too complicated. Ditch the indicators. They’ll work for some people and that’s fine. My personal opinion is to ditch them because they don’t provide much for me. Keep things simple, and it may be worth looking at the exits more than the entries.
David: The next question is: out of the thousands of stocks that are out there, how do I pick a few that have moved with a chance of high probability each day every day without scrolling through each one.
Stuart: You’ve got to have a way to narrow them down. I remember this when I started out. There are two thousand stocks on the ASX and I only want four or five to get going. How do I narrow it down to four or five? I think the easiest way, and one of the best stock market tips, is to get software that allows you to input you own entry criteria, the conditions you want to see in stocks. Software and PCs now does it within minutes or seconds and presents you with a small list for you to then assess yourself each chart by itself.
Software is needed which allows you not just to bring up the chart, but to go through data, perform calculations and identify your own criteria.
David: If you do not have access to charting software, come up with a trading method that is calculated, based on some data you might find in newspapers. Some newspapers will mark which stocks are making new six month highs or fifty-two week highs. That might be a way to thin the thousands of stocks to a few. But get yourself a charting package.
Stuart and I use Metastock, but there are plenty out there, and start with that.
For the next question is how to find good momentum trades.
Stuart: Find stocks that are already in well established trends. I do that all the time. I just buy things that have gone through that period of consolidation and have now started to move up. Look for higher peaks, higher troughs, sitting above their medium term moving average whether it be 30, 50, 60 day moving average and showing the capacity and the potential to keep moving higher. With a fifty week high, clearly this stock has an upside, because with a fifty two week high there must be great demand for this stock. This is the simpler way of doing that.
David: The next question concerns entry and exits – what is a good stop? For entry, have a methodology to identify what’s going up. Exit points – choose an appropriate one. For good stops, you can use percentage, ATR or technical and the lowest low.
Find appropriate entry and exit points and buy some software to sort out the best stocks to buy. These are the best stock market tips for any beginner trader.
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