Stock Tips

We're not going to give you a "tip" on any particular stock, and if we did it would be a very bad idea to act on it without doing some independent research. Anonymous stock tips, without credible analysis, like the kind that show up in email, or even a tip from somebody you know at work, are most likely not in your best interest. As with anything involving the stock market, you want to go into it with your eyes wide open. This isn't really a stock tip, it's more of a ground rule. You can really get hurt if you're not careful, in fact it's far too easy to lose money in stocks.

That said, if you'd like to jump straight to the hot stocks, just pull up the Gigascanner free stock screener control panel and go get them (this is a summary of  point #19 below). Use it to find precision buy and sell signals on market-leading stocks - or most anything else you'd like to see.

Back to the write-up. Many people aren't cut out for stock-trading. Even long-term investing isn't so easy. Success requires discipline, continuity, and focus. There are a million foolish mistakes to make, and a million chances to make them. Opportunities for distraction are ever-present, and all it takes is a few seconds to punch in a trade impulsively, a trade that you'll regret.

First you'll need to get up to speed. Read some books about the stock market, and study charts. Start by reading the famous text "How To Make Money In Stocks", by William O'Neil. He's considered the father of so-called momentum investing. Another excellent book is "How I Made $2 Million In The Stock Market", by Darvas. Learn how how technical analysis works, and develop a framework and a game plan with a positive statistical expectation. Formulate an elemental set of rules to operate by.

Cultivate a daily routine of study, analysis, and decision. Make an adjustment or execute a trade exactly when needed, no more, no less. Try and avoid all distractions. Don't watch the ticks, that's one of the worst things you can do. Don't listen to opinions, even of experts. Don't listen to the financial news, and don't believe the common wisdom. Your job is simply to study the charts, and recognize what the price and volume patterns are telling you. Learn to recognize the waves of overbought and oversold, and support and resistance. Pay close attention to the volume, it's probably the ultimate technical indicator. Remember that the charts already contain all the information there is to know, history and all. The news of the day is always after-the-fact.

That being said, here are some of the same points re-stated in summary form:

1. The first tip is not to take stock tips! Those tips on stocks about to show "explosive growth", typically reaching you by email spam, are virtually guaranteed to lose you money. A tip like this generally will stem from a rumor, planted by insiders to create buying interest in the stock, so that they can unload it. It's called "pump and dump".

2. Realize that trading stocks is a business, and it's highly competetive, and it takes no prisoners. A professional approach is required, based on serious analysis and research, with a reasonable positive expectation, on a statistical basis - otherwise you're just gambling.

3. Patience and forbearance is required. You need to play stocks by the way the move, not by your need to make money. You need to wait for the high-probability situations, which don't come along every day. You need to analyze the market objectively, and move decisively when the moment is right. When buying a stock, don't be tempted to chase it. Usually it's better to sit on your hands, and let the market come to you on a limit order.

4. Having bought a winning stock, patience is needed to let it grow. If a stock is going to go up by 25%, or maybe 100%, that's going to take some time. Day-trading is an exceedingly bad practice. Make sure you're not playing for peanuts. It's been said before: You need to cut the losers, and let the winners run.

5. You need to be able to sell your favorite stock, just when it appears to be going to the moon. Don't get attached to it. The market always looks extremely bullish right at the top. It's better to sell on the way up, rather than under pressure on the way back down.

6. Learn the hard truths about money management, as it relates to your account balance. Rules based on the balance sheet at times need to overrule something you might rather do with a stock, like averaging down (which is usually a very bad idea - you can get wiped out if it doesn't go your way).

7. One big one money management principle is not to put all your eggs in one basket. You should have a minimum of three or four stocks to start with, and maybe up to 10 different stocks in a large account. But don't overdo it. Diversification can be a double-edged sword. With too many stocks you virtually guarantee mediocre results, by diluting the effect of a big winner you might have.

8. Another principle is that of cutting losses. It's vital not to let yourself get too far down on something. The math is unfortunately rigged against you, for example if you get down by 25%, you will need to make 33% to get back to even. Or if you let yourself get down by 50%, you'll need to make 100% to break even. And that's a pretty difficult thing to do.

9. Be willing to cut a loss and not worry about. If it's because of a mistake, just make sure you don't repeat it. Selling to cut a loss is vital to protect against catastrophic damage to your account. It's just like paying for an insurance policy. You need to give a new purchase a reasonable amount of room, but you also don't want to lose more than 7 - 10% no matter what. Buying the stock at the right time right really helps with this.

11. Learn from your mistakes, but don't agonize over them. Sometimes you can tell right away you've made a mistake, and then it's best just to undo whatever you did, i.e., cut the loss as soon as you realize the error. The old adage is true - the first loss is the best (cheapest) loss. Be sure to do the postmortem on a failed trade.

12. Keep a log book with charts marked up with the buys and sells. Mark up each chart has a description of the reasons for the trade, and any pertinent information such as the Relative Strength, etc. You will be amazed to look back and see what you did wrong, and what you did right

13. It takes time to get a good gain, and you can't afford to sell out too early, for meager returns. You're not playing for peanuts. You have to stay there long enough to let it do it's thing. But, don't overstay the position either.Sell when you are giddy with profits, rather than under pressure. Above all, never let a good profit turn into a loss.

14. Trade the right types of signals for the right type of market. For example, new highs are great at the start of a new uptrend, but in a mature market they're risky,. And sell signals will work best in choppy markets, as opposed to a strong uptrend. Etcetera.

15. Be constantly aware of the overall market tone, bullish or bearish. Once again technical analysis is the answer. You don't want to be taking buy signals when the market is topping out. Similarly, you don't want to take a sell signal just as a stock is breaking out.

16. Hint - one of the most effective parameters for sorting a stock screen is the volume surge (the percentage surge above to the 50-day exponential moving average). In the words of David Ryan, champion investor, "volume is the ultimate technical indicator".

17. Pay attention to the distance a stock is above the moving average. The best buy signals occur closer to the average, when the stock is less extended. Or, when the market starts going up steeper and steeper, pulling far above the moving average, it's a safe bet that "the end is near". If you get a sell signal in this situation, it's almost always best to take it. It will look better on your balance sheet, i.e., 10% in a week or two is a vastly higher ROR than say 25% in a year, which most investors can barely muster even in a roaring bull market.

18. Pay attention to your psychology. Your thinking can easily be corrupted, subconsciously, by the stress of an open position, or the stress of needing to make money, or the feeling of missing out, or the stress of not admitting a mistake, or any number of other factors. Some traders find this point to be the hardest to master.

19. Use an deep-discount online stock broker. The main consideration is the sales commissions, which should be as low as possible. Some of the fancier brokerages have full-featured web sites with all kinds of research, but it's really not worth paying the higher fees.

19. Use the Gigascanner free stock screener to find stocks to trade, and to time your buys and sells with precision. It features beautiful, full-featured stock charts with amazing, custom buy and sell signals of our own design, that have an uncanny knack for picking the exact highs and lows of a run. It also features symbol lists (watch lists) and custom workspaces. You can set up the workspaces with your favorite signals and indicators, scaling, zoom factor, etc., even your favorite color scheme. It's a real winner.