How to make money trading stocks involves thinking like a trader. Did today's market action seem random to you? Do you feel like you are just flipping a coin when you trade? If you do, it means you are not thinking like a trader.
Make Money Swing Trading
The S&P 500 goes through periods of coupling and decoupling from the U.S. dollar. The first lesson, if you want to know how to make money trading is to ask yourself is the S&P 500 doing the opposite of the U.S. dollar or are both markets just doing their own thing? If the S&P 500 and U.S. dollar are doing the opposite of each other, then the two are going through a coupling period. You can use the correlation coefficient indicator to determine if the S&P 500 and the U.S. dollar are coupled or decoupled. Take a moment to study the chart of the S&P 500 and the U.S. dollar with the correlation coefficient indicator added below.
First notice the swings back and forth on the correlation coefficient indicator. These show the regular patterns of coupling and decoupling between SPX and the U.S. dollar. Anything above +0.50 or below -0.50 shows a correlation or coupling between SPX and the dollar. If it's above +0.50, it means there is a positive correlation which means both markets are moving together. If the correlation coefficient is below -0.50, it means there is a negative correlation which means both markets are moving opposite each other. Anything between +0.50 and -0.50 shows no correlation or decoupling between the S&P 500 and the dollar.
When you're learning how to make money trading stocks it's important to establish if there's any influence on the current swings on the S&P 500 coming from the U.S. dollar. The swings that occur on the S&P 500 are a lot easier to time if it's currently coupled to the U.S. dollar.
One of the most valuable things you can do when learning how to make money trading is to have the S&P 500 chart up on one of your trading monitors, streaming in real-time. Do not get tunnel vision where you only look at the chart of the stock you are trading.
Make Money Etrade
My favorite stock trading platform is etrade. You can not only have the chart of the S&P 500 up on one of your trading monitors but you can have CNBC streaming news feed on another monitor. I did a lesson just focused on using Etrade Pro here.
How To Make Money Trading Stocks
There are only three patterns to learn if you want to make money swing trading. The oversold pattern, the continuation pattern, and the breakout pattern.
It is important to understand which pattern you will find more of depending on the S&P 500. For example, if the S&P 500 has just done a big pullback and maybe even a Fibonacci retracement, you are much more likely to find some good stocks to trade that have formed an oversold pattern on the chart. Conversely, if the S&P 500 has been uptrending for several weeks, you are more likely to find continuation patterns or breakout patterns to trade than you are oversold patterns.
When there are few oversold patterns forming across thousands of stocks, it means you should lighten up on the number of new positions you are taking because we want to buy stocks at oversold levels and we don't want to chase stocks. The reason you want to establish if the market is in an oversold, continuation, or breakout pattern is that you want to use different trading rules in each type of market.
Frequently Asked Questions about How To Make Money Trading Stocks
What percentage of people make money day trading?
The percentage of people that make money day trading is very small. Just like with swing trading, position trading, and even investing, a very small percentage of people are able to quit their day job and successfullly day trade at home for a living full-time.
Day trading has very high "washout rates" and regulators who have examined the books of day-trading firms say that more than 9 out of 10 traders end up losing money.
New York Magazine published the video below called The Day Trader that gives you a glimse inside the world of day trading with a few pointers.
What does swing trading mean?
Swing trading is any stock play where the hold time is between 1 and 5 days and the goal is to profit from a "swing" move up or down.
The most common patten that swing traders trade is the oversold pattern.
Many swing traders go for a 5% to 10% move and then they exit the market quickly.
TradeWins1 published the excellent video below by Oliver Velez, the CEO of Velez Capital Management, called Oliver Velez: Swing Trading.
Make Money Buying Stocks
Jason Bond Picks often targets the oversold pattern on small cap stocks. Jason Bond says that the oversold pattern is his favorite. His second favorite is the continuation pattern. Jason Bond says, "Continuation patterns suggest that people are in at lower levels and therefore represent resistance because they can take profits at any time. Knowing this, the continuation pattern is my second favorite pattern. Continuation patterns are usually somewhere between oversold and overbought on the RSI. Continuation patterns occur in all sorts of chart patterns."
In the video lesson below, you'll learn some great pointers for how to make money trading even in a sideways or flat market.
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