There is a fine line between proper market analysis and timely trade execution. Most of the time, traders who analyze the market too much end up paralyzed causing them to miss out on big market moves. As a remedy, a trade strategy has to implement major buy signals that prompt a trader to enter the trade at moment's notice.
In this post, we will be talking about how to filter the noise and be laser focused on the important buy signals in the stock market.
Keep It Simple
When it comes to profitable trading, less is more. When you listen to too much opinion, analysis and look at too many indicators, your judgement becomes obscured and you will find yourself hitting the buy and sell button at the wrong time. To make it easy for you to formulate fast decisions, your source of information should be filtered. It is just the stock charts and you. News, reports, disclosures, analysis are only a means to validate what the market is already saying. Price action is always king and that is where we give our full attention.
What to look for?
There are stock patterns that historically show a preemptive bias towards a specific move. Your goal is to be able to spot these signals and validate its strength. If it does respect the formation, you should know the relevant price levels where you should enter the trade, take profit, or cut losses depending on prevailing conditions of the market.
Your goal as a trader is to respond and not to predict
Traders in the habit of predicting major moves will usually get humbled by the market. There are too many factors that could come into play that can send the market spiraling down or soaring high at such short notice.
To help you properly respond to moves that the market is making, here are tips to navigate the market more smoothly:
Bull Market Buy Signals:
(Premise: Overall market is above MA200 and near 52 week highs)
1. EMA9 Momentum Bounce
During Bull markets, Momentum plays will show in the chart as aggressive and consistent buying above the EMA9 indicator (shown in the chart below as the green line).
To enter this play, the price has to validate strong buying whenever the price bounces above EMA9. Enter the stock once it does and ride it as long as the EMA9 support holds.
2. Buy on Breakout
From the name itself, a Buy on Breakout entry demands that the stock is bought when it breaks out out from a key resistance with above average buying volume. This play has to be entered quickly since the price tends to do a run away gap and leave bottom fishers behind.
Bear Market Buy Signals:
(Premise: Overall market is below MA200 and near or below the 52 week low price)
1. MA Crossover Reversal
After steep market crashes, prices will usually consolidate at the bottom for a few days or weeks. Some stocks will show a consolidation pattern wherein the EMA9 slowly crosses above the MA20 line. This is a classic reversal that may encourage a short term rally. It is best to sell into strength quickly when you are able to enter this pattern.
2. Bullish Divergence
A Bullish Divergence is a technical pattern that shows a shift in strength from the sellers to the buyers. This is illustrated as a diverging pattern between the stock price and the RSI. When the low points of the price is pointing down and the low points of the RSI is pointing up, a weakness in selling is occurring. This means that buying pressure is starting to pick up and the stock price is bound for a reversal.
3. Multi Year Support + RSI Oversold Bounce
An effective stock entry after a steep market crash is to enter high earning index stocks when they hit the RSI 20 level and below. The technical response of the market during a sharp oversold drop is to rebound sharply in the short term. This rebound can land you a quick profit if entered at the right level.
We hope this post has helped you. To learn more about stock trading and investments, make sure to visit the Online Learning section of our website.
Opmerkingen