Posted May 26, 2021
By Alan Knuckman
Booking Gains Without Gambling
Some people think stock market trading is just fancy gambling, but they couldn't be further from the truth!
Sure, it's fun to go out and throw some money around at the horse track. Sometimes I talk a couple of buddies into going down to the harness races on a slow weekend. But picking winners is practically random, especially at the harness races where it seems they can slow down the cart behind the horse.
When I was younger, I used to make the pilgrimage to Las Vegas the first week of March Madness. I had a good analytical system to help place my bets and it was quite a rush watching dozens of games simultaneously at the sportsbook.
However, the silliness of seeing a meaningless basket blow up the spread at the end of the game was an all-too-often reminder that even with a good system, this was strictly gambling…
Of course, betting on 16 games on Thursday and Friday and another 8 games on Saturday and Sunday was exhausting! I was happy to go back to work Monday where I can quantify my odds and relax doing what I do best... Trading the markets!
As you can see, I'm not much of a gambler. I like to control the odds and know I have an edge like I do with the options plays I pick. Trading is all about probability and money management...not gambling!
Save your crazy bets for Vegas!
Keep it In the Money,
Trading Tip of The Day: How to Buy The Dip Correctly
You've probably heard analysts and market pundits telling investors to buy the dip more times than you can count. But you shouldn't blindly throw money at a play just because it starts trending lower. Instead, you should wait for the right bounce to come along before scooping up shares.
First, you need to get an idea of where your stock should bounce.
How do you figure that out? You can draw a line or use a moving average that fits the play's uptrend, whatever works best.
A simple moving average is the average price of a stock over a certain period. For instance, a 50-day moving average is the average price over the past 50 trading sessions. The main benefit of using moving averages is that they effectively smooth out choppy price action to give you a better sense of a stock's short-term and long-term trends.
Once you determine your support level, you should wait until the stock moves higher after visiting the line. If the stock fails to bounce in the neighborhood of your support line, then don't buy. It's as simple as that.
Sometimes, the stock will bounce nicely off your support line or moving averages. Other times, it will trick weak hands into selling by briefly breaking through support before quickly recovering.
It's best to wait for your potential long-term play to close higher than it opened on the day. That way, youll know youre buying a dip heading into an authentic bounce instead of a potentially hazardous breakdown.
Of course, this isn't an exact science. It works better with some stocks than others. You can't get too hung up on making the perfect move.
The key is to watch and wait, you have to take what the market gives you!