How to identify CFD for rising stocks?

From this article, you will learn how to choose an appropriate trading timeframe. You will find out about the dangers of bearish markets, and whether it is possible to invest without losses.

Not only professional speculators, but also amateur traders, who wish to make money in stock, trade CFD for stocks (hereinafter -stocks). If a professional knows how to select stocks for trading, a beginner needs a helping hand.

Choose a timeframe and start trading

Day trading stocks suggests only a basic analysis. The longer is the timeframe, the more thoroughly should one analyze the corporation and the industry, it belongs to. You also need to estimate the stocks liquidity, which is defined by a large trading volume. It is necessary to follow the stock price moves over a few months, or even years. You’d better choose the equities of the company, you are well familiar with. Beginners shouldn’t consider risky assets, that is for professionals.

Monitoring in short-term trading

In speculative stock trading, it is important to analyze the information from professional journals, analytics; to read the reports on industrial capacities, new products and services in the company, its stock prices for at least a few months. It makes sense to study the performance of not a single corporation, but some of them in the same industry, to choose the best stocks of the best. It is better to be an expert in one industry than have a vague idea of a few ones; it will hardly help you estimate a company’s position. You need to follow the events that can influence the company’s stock prices in future. For example, if a company’s stock price increased by 0.1 before the innovation is introduced, then it is likely to grow higher in future. If you have completed a list of companies with all economic indicators, next, you should choose the one, whose stocks can be traded to gain profits with the minimum risk.

Short-term traders try to gain more than they lose. This approach can well suit you as well.

Middle-term trading

In speculating, when the positions are hold on opened from a few days till a few weeks, you need to carry on a thorough analysis. It includes graphic analysis, and analyzing the news about a company's stock prices over the last year; considering reliable experts’ opinions; and such economic indicators as quarterly earning, dividends payments, share, held by the company owners, liquidity amount, company’s debts, the price-to-earnings ratio, or P/E that is the ratio of the market price of a company's stock to its earnings per share.

Position trading

In this case, in addition to general monitoring, needed for short-term and middle-term trading, it is reasonable to carry out a thorough, fundamental analysis. Position speculators are interested in balance-sheet that includes prices for constructions, monitoring of the revenue reports and a lot of other information. You need to estimate the return performance.

Opposite trading

Many traders like to follow “the opposite way”, it is seldom efficient in stock market. It is easier to predict stocks than currencies or commodities. If a stock is rising in price, you can wait until it starts being corrected and then buy it. If the price is very high, it is not yet a reason to go short.

Between $20 and $50

That is the most common price range for rising stocks. If the market is overheated as, for example, in early 2018, it is more difficult to find stocks, able to start rising, than in 2009. Innovation sector stocks often grow in price fast. Internet companies’ stock can also start growing fast.

You should forget that even a costly stock can still grow higher in price. Very expensive stocks cam become cheap at once if, for example, a business is divided. You’d better stay away from securities that cost too much. 

Beware of gaps!

Price gaps are more often in the stock market than in Forex or in the commodity market. Business splitting is also dangerous. You can’t hedge against gaps in the equity market, but you can reduce the risks of entering a price gap. For example, trading stock indexes is relatively safe, as price gaps are not so wide there.

If a share is not expensive and hasn’t featured an immediate crash in price before, the gap is less likely to occur. However, nobody can guarantee you to be entirely safe. It is quite reasonable to read the news about this or that company or corporation. You can well learn in advance that something is going wrong with the corporation.

Safe pyramiding

This approach is thought to be the most efficient. It is quite simple. A trader buys stock at, for example, $50, then buys more at $50.50. For the first order, they put a stop order at the breakeven. This is the most efficient way to trade stocks. For example, in Forex it is almost useless, as the prices rarely move in the same direction for a long time.

You can construct such pyramids for quite a long period of time, but of course, you should be reasonable and scalp your profits from time to time.

How not to get bored in the stock market?

Many speculators, after Forex, feel uncomfortable trading stocks. They get...bored! However, it is far better to be bored and drive a good income that to be excited and lose your money. But that is not how everybody thinks. Some stock traders seek excitement and adrenaline here. Of course, they may consider the stock market not to be a place where one can get a dose of adrenaline. However, you can feel quite stressed, buying a big volume of cheap stock. By the way, positive stress is also dangerous. A trader feels enormous joy, taking a large profit; but joy can have serious health consequence as well.

European or U.S. stocks: which are better?

In terms of market liquidity, that is the U.S. market, looking more appealing than any other one. It has been so during the recent decades; and it is going to be so in future. All the talks about “China’s miracle” are hollow and senseless. One may well buy cheap China’s or Brazil’s stocks that might surge in price, but there is highly likely to be a gap in these markets.

If a trader has a thing for “exotic”, they can trade Japanese or European securities. But still, the U.S. stocks are the best for speculating.

Investments without losses!

As a rule, professionals close 2/3 of their trades with a profit and 1/3 of them with a loss.

However, one can be successful even gaining profits from 1/3 of all trades. You just need to take huge profits and tiny loses. One of such stock speculators is Ahmet Okumus, who came from Istanbul to New York and became rich very quickly.

His way to trade is quite unusual. Okumus buys the securities that has grown unreasonably cheap. For example, if shares dropped down to $7, and, according to Ahmet they couldn’t be below $6, then he buys them and holds until he wins. Okumus could have achieved even better results that that of 90% trades, but what for? He needs profits, rather then better statistics. If shares don’t grow in price for long, he gets rid of them and buys another stock. This selection principle is called “a pig at the trough”

Of course, Okumus employs a lot of people, who monitor the situation, check the accounting of this or that corporation and draw the conclusions. You will hardly manage this approach.

The big short!

In mutual investment funds, there is a group of traders who always look for sells. Bears often bring no profits to the fund, but during the market crash, they cover huge losses. These people look for the “faults” in this or that company and bet on the stocks crash. During the market fall, these experts are of key value. However, they are demanded during the general bullish trend as well; as, even then, there are bearish market phases from time to time. 

For an average trader, there is no point in going short when the market is growing. It is far more sensible to be bullish in a rising market, go short in the falling one.

If you are a melancholic, you need to know about your character, you shouldn’t panic and put all the trades to sell. If you are a mutual fund manager, you need to identify pessimists among traders and suggest they find another job. There many people, who believe that everything will be destroyed soon. Such speculators do only harm. If you are prone to melancholy and mood swings, then work on yourself.

Beware of bearish markets!

If you look at the stock charts of 2008 and think it was easy to become rich then, your are wrong. The market of falling stocks is very complicated due to the “ticking up”.

Bullish market is comparatively simple, the prices are growing, rolling back down a little, from time to time. If you manage to stay in bearish market without losses, your name will be written in gold letters in Wall Street. At least, that is how stock speculators are joking. And of course, you are likely to get rich in bullish market; but even then you shouldn’t overload your account or trade at random.

Markets also get older

However long could a bullish market continue, there will always be a recession, or, perhaps, a global crisis. The higher rise stock prices, the more dramatic will be the crash and the panic. Crises occur once in about five-ten years. But it can be so that there is no serious crisis over fifteen years. But still, markets get old. A crisis usually starts when hydrocarbons grow very expensive. In 2007, oil prices grew above $146 per barrel. Many experts were saying that the crisis was inevitable. Although, not everybody listened to them. However, there is also common hand-wringing in the market, when someone starts unreasonable panic, promising a soon doomsday. Currently, oil prices are in the middle of their range. However, crises don’t always result from high oil prices. The market can also be crashed by the banking sector that gives loans left and right, failing to get the money back later. The high prices for the Internet companies stock also crashed the stock market once.

Case study: McDonald's or Boeing?

The prices for stocks in January, 2018: McDonald's - $173, and Boeing - $317. What stocks are better to buy? The history showed that, during the crisis in 2008, McDonald’s stock prices were not falling so fast as these of Boeing. Therefore, the previous scenario is likely to repeat. Boeing stocks are quite expensive now.

The stock market paradox is that something expensive grows more expensive, and something cheap grows cheaper.

That is, of course, not always so. Stock, having grown in price too much groundlessly, is very risky to buy.

Traders had better buy not one stock, but a few of them, buying more with the price growth. Besides, remember to set stop orders at the breakeven level.

 


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Analyzing and selecting stocks to trade

The content of this article reflects the author’s opinion and does not necessarily reflect the official position of LiteForex. The material published on this page is provided for informational purposes only and should not be considered as the provision of investment advice for the purposes of Directive 2004/39/EC.

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