Larry’s Note: For the first time in 20 years, the SEC is moving to overhaul IPOs, vowing to “Make IPOs Great Again.” That’s unleashing more than 800 unicorns in what Forbes calls “an IPO tsunami.”
Most everyday investors will get locked out. Meanwhile, I have a simple, five-minute strategy for pocketing $321, $1,605, or even $3,210 or more on IPO days… without touching the stock.
And I’m revealing how it works during an urgent strategy session this upcoming Wednesday, July 15, at 8 p.m. ET. If you’d like to be included, click here to add your name to my guest list automatically.
Stocks have enjoyed a big run. Yet the stocks you’re trading may have hardly budged at all.
It’s a scenario all of us have experienced at some time. It can be immensely frustrating…
What about all the research you did? The setup looked strong on the chart.
More likely than not, it’s not your process that’s wrong. But you might be trading the wrong type of stocks.
Understanding which type of stocks to trade is vitally important to generating consistent profits. So let’s see how to pick the right ones…
Investors typically want a stable company that generates good profits and operates with a clear competitive advantage in its sector. That way, it can keep building profits over time.
And there’s nothing wrong with buying these types of stocks in your retirement portfolio, for example.
The problem with these types of blue-chip stocks is that their “assets” (low volatility, slow but steady gains) can be “liabilities” to a trader.
Even if the stock rallies, it might not be enough of a move to generate sufficient gains.
We all have a limited amount of capital. As traders, we can’t tie up our trading capital in a stock that’s stuck in first gear.
If your stock barely moves when others are swinging about day to day, then odds are you’re trading the wrong stock.
We want to trade stocks that move around… and leave “buy and hold” stocks for investors.
Stocks like Micron Technology (MU), Nvidia (NVDA), and Tesla (TSLA) have captured plenty of attention in the market’s bull run. Folks have piled into them, seeking outsized gains.
While these names might earn lots of headlines, though, there are plenty of other stocks with a lower profile but highly tradable swings.
One way you can identify them is through their beta. (You can find that number on just about any trading platform.)
A stock’s beta measures its volatility in relation to the broader market (S&P 500).
A stock with a beta of 1.0 means that it moves in line with the market. Above 1.0 means it’s more volatile than the market, and less than 1.0 means it’s less volatile.
While an investor might sleep better with a beta less than 1.0, that stock probably won’t make big enough moves for a trader. It will burn up too much of your time as you wait for it to move.
As a trader, you would typically look for a beta of 1.5 or higher – ideally, above 2.0.
But beta isn’t the only way you can gauge volatility… You can also use the Average True Range (ATR). It plots the average range of price movements over a 14-day period.
ATR rises when a stock is becoming more volatile (and vice versa). It typically peaks when a stock is bottoming out following a dramatic sell-off. That can help you anticipate a reversal higher.
Similarly, you can measure a stock’s percentage gains (or losses) over different periods of time to gauge its volatility.
And beyond charts, you can focus on sectors known to move around a lot (like tech and biotech, for example). You can also trade around important announcements like company earnings.
These factors can produce outsized moves – and large gains in a short time.
All these things can help you narrow down the stocks that offer the best chance of a tradeable move.
Trading can be full of frustrations – none more so than when a stock just doesn’t move. So make sure you’re looking at the right type of stock before committing your hard-earned funds.
Happy Trading,
Larry Benedict
Editor, Trading With Larry Benedict
Reading Trading With Larry Benedict will allow you to take a look into the mind of one of the market’s greatest traders. You’ll be able to recognize and take advantage of trends in the market in no time.
