A Beginner's Guide to the Stock Market

by Matthew R. Kratter

That’s why if a growth stock is hitting new 52-week or all-time highs and it also has a “Short % of Float” that is greater than 10%, I get very interested.

Knowing when to sell (at either a loss or profit) can be more difficult. Here are some of the criteria that I like to use: Take profits when you are so excited and happy about your trade that you are losing sleep. Take profits if a stock moves up 100% in 2 weeks or less. Take profits when you are up 300% from your entry price. Take profits when all of your friends and CNBC begin to talk a lot about the stock. At this point, the trade has become crowded, and hence much more dangerous. Take profits if a taxi driver or barber tell you to buy the stock. Exit (with a profit or loss) when the stock closes below its 50-day moving average. Use this method to capture shorter moves. Exit (with a profit or loss) when the stock closes below its 200-day moving average. Use this method to capture longer moves. Exit (with a profit or loss) when the 50-day moving average crosses below the 200-day moving average. Use this method to capture longer moves. Use a 10-day or 20-day exponential moving average (EMA) as a trailing stop. Exit your position if the stock has a daily close below this EMA. You can also scale out of a profitable position. Sell 25% of your position every Monday for 4 weeks in a row, or something similar. That is a good way to lock in some profits, while still keeping some exposure to the stock in case it continues to move higher.

Just be sure to never add to a losing position. Pick a stop loss level when you enter the trade and stick to it. Only losers average losers. Rocket stocks go up fast, but they can also go down fast.

It's hard to overpay at an IPO, if the company is going to be around in 30 years and massively expand its operations. But most companies do not grow up to become a Microsoft or Starbucks, so you cannot simply buy every IPO that comes out. There are just too many IPOs, and many of them are bankrupt just 5 years later.

An IPO with a small float has the potential to go up or down a lot, which makes it a great trading vehicle.

When I'm buying IPOs, I like to focus on more obscure companies, which I often find on this calendar of new IPOs: https://www.nasdaq.com/markets/ipos/

Here's a day trading strategy that works to capture moves like this: Find a stock that is gapping up on good news (like a better than expected earnings report). Wait 15 minutes after the market's open, and note the stock's price at that time. Put in a limit order to buy the stock at that price. If your order is not executed in the next 15 minutes, cancel your order and walk away. If your order is filled, hold on to the stock for the rest of the trading day, and then take profits a couple of minutes before the market closes that day. Exit the stock early if it trades below the lowest price of that first 15 minutes of morning trading.

Don’t buy stocks that are hitting 52-week lows. Don’t trade penny stocks. Don’t short stocks. Don’t trade on margin. Don’t trade other people’s ideas.