TheRiskBlog

Most of the times finding the right trading opportunity can be a difficult task to do. It is even more difficult when considering the correct risk level. When you jump between different stocks, most of the times you will lose not win. The reason being is, you only jump in on an “opportunity” when it presents itself to you. Most of the times the real opportunity is gone when we jump in.

So what is the solution? There are several possibilities, i have chosen four of them that proved to be profitable in the past

1. Track Hype Markets. Do you know any Apple product? Oh you do, you own an ipod or even an iPhone? Well, in this case you are in the middle of a hype market. Find out everything you can about a company which products you and your neighbor use. Nowadays ipods are all over the place and the iPhone is becoming the most hype mobile phone of the planet, so most probably Apple is making money off this situation. If we consider proper risk management, it is not perfect to just jump in and go long, but we can wait until the stock comes back, adjust our position size according to the volatility of the stock, put a risk stop on our trade and go long in the stock. (By any means, this is not a call to go long Apple it is just a hint to track hype markets. Trading is dangerous and you can lose all money in your account when engaging in trading).

2. Keep track of moving markets. What do i mean by this? I do not mean to track the daily up and down swings of the market, but i mean to find a market that moves extraordinary well. For example back in the 90´s it was .com stocks which did well, nowadays it is alternative energy that moves well. So i try to find out everything, that i can about these markets. First of all i ll take the market leader of the news. For example let´s have a look at First Solar (FSLR). This company is the market leader, so i need to find its competition. How do i do that. I search for it on the net, but since i don´t know the competition a Google search doesn´t do me any good. Instead i use a web service like Smartmoney.
Here i put in the Ticker Symbol of the known company, in our case FSLR in the search box at the upper right corner and on the next page hit the compare button just over and to the left of the small chart of First Solar. This brings up a comparison chart of the competition, in our case we get four new company names Linear Technology Corp. (LLTC), Xilinx Inc. (XLNX), Energy Conversion Devices Inc. (ENER) and Nvidia Corp. (NVDA).
With this information i can start a thorough research now.

3. Trade your best known shares. Everybody loves a stock or is following a specific stock on an every day basis, so use the knowledge and expertise you gain by following your best known stock. Maybe you work for a company you love or maybe you use a product of a company and you love the product. So start a research on the company and follow their stock, you will eventually gain a feeling for what the stock is doing. If you then trade the stock you will have a better hit rate, which then lowers your risk profile for trading that stock.

4. Trade what moves against the markets. Most of the times, stocks that move against the markets do so because there is a reason for that. If you have an uptrend in the market and almost every single stock is going up but a group of stocks move against this trend then it is time to go with this microtrend. You do not need to know the reason, why the stock is falling, you just need to follow it and trade it. Again by doing so you will lower your risk level because obviously the reason must be very good, otherwise the stock would not be able to fall when everything else is going up.