How to Ride Stocks That Are Already Moving — and Make Money Doing It

I day trade stocks, but to find my next target stock, I don’t hunch over financial reports the way an analyst does.

I’ll let you in on a secret: Sometimes I don’t even know the name of the company whose stock I’m trading; I’m simply trading the symbol.

I focus on two vital things: How the stock is moving and, by extension, how other traders are thinking about how that stock is moving.

Sign up for How Success Happens and learn from well-known business leaders and celebrities, uncovering the shifts, strategies and lessons that powered their rise. Get it in your inbox.

Financial vs technical analysis

These are two different beasts. Financial analysis consists of poring over income statements, balance sheets, regulatory filings and the like. It’s what analysts and investors do when speculating on the prospects of a stock.

Is it undervalued, and will the market realize that over time? What will the effects of the latest AI developments be on the prospects for the company? Maybe poor management is holding down the value of the stock, and the recent shareholder proxy challenge will be successful, boosting the stock’s value. Maybe an analyst uncovered “creative” accounting practices and shorted the stock before explaining to the world what she discovered.

I use the term “speculating” on purpose because just think about how reality can be the opposite of perception: Long-term buyers of stocks are considered “investors,” and we short-term buyers are sniffingly called “speculators.”

I’m the shortest of short-term buyers: My average hold time in more than 25,000 trades is just over five minutes. Yet who’s the speculator? I only buy stocks that are already moving very significantly. I do not speculate that sometime in the next quarter or year, the stock may rise to approach some theoretical value.

In contrast to financial analysis, I engage in continual technical analysis before I buy, while I hold, and before I sell a stock. This is a big topic that could fill a book, but fortunately, a handful of concepts can get you far down the road.

Half dollars and whole dollars

This is the simplest of technical analyses. Think about stock trades you may have done in the past: Did you tell your broker to hang on to the stock and sell only if it reaches $4.92? If you did, you’re weird in a good way. Most people focus on whole dollars, half dollars and round numbers, both as targets to buy and to sell.

This phenomenon also describes what we day traders call support and resistance. Stocks do not trade smoothly from one price to the next penny higher or lower. Instead, it’s as if a magnetic force seems to hold back a stock, and then the force switches, and at another moment, the stock is shooting up or down.

Imagine that I hold a lot of one stock, and I decide it’s time to sell at $4.00. In fact, I’m ready to sell 100,000 shares at that price. Other people think the stock really could go places, and they get in at $3.90. Some more people get in, and the price approaches $4.00. But every time it gets near, I dump some of my shares.

Someone else buys more, but I’m on the other side of that transaction, too, dumping another 15,000 of my shares. Depending on how many shares are outstanding, for a short time, I can single-handedly stall that stock at or under $4.00. To casual observers, it’s just stuck right at $4.00. Now, if there are enough buyers, soon they’ll exhaust my inventory, and the price could quickly rise to the next place where holders of that stock decide to sell.

Support and resistance are not limited to stocks. Not long ago, gold broke through the level of $5,000 per ounce. That has never been done. Now it makes it easier for gold to go higher. The psychology of: “it’s never happened; the price is sure to turn back once again” has been shattered. The people who were delighted to sell their gold for $5,000 made their sales, and another batch of potential sellers are waiting at the next round number.

Sign up for the Money Makers newsletter to get weekly, expert-backed tips to help you earn more money — from real people who founded and scaled successful businesses. Get it in your inbox.

Moving averages

There are countless other hidden forces in the market. Here’s one more that we day traders can see, but the vast majority of humanity has no clue about: It’s called “200 EMA“. That stands for the “200 Exponential Moving Average,” and it’s a ratio that your trading software can continuously calculate. It’s a weighted measure of the last 200 candles that many traders will graph right on their candlestick charts.

When a stock approaches or crosses that well-respected 200 EMA level, day traders around the world are taking notice and possibly getting ready to buy or sell.

Over time, I’ve trimmed the number of indicators I watch because sometimes I find that an indicator just adds more confusion than clarity.

I heard about a racecar driver who saved his own life. He was tearing around the track, fully absorbed. As he rounded a corner, he noticed everyone’s attention was riveted on something well in front of him that he couldn’t yet see. Something was not right. In an instant, he realized what it must be: a crash. By focusing on what they were focused on, he could avoid being part of the pile-up.

When you get good at watching your favorite set of indicators, and you practice enough, sometimes the indicators can practically scream at you about the crash — or opportunity — that’s up around the next corner.

I don’t try to buy low and sell high; I try to buy high and sell higher. I focus on the stock that has worldwide high interest right now, and I use technical analysis to give me a glimpse of the boundaries that often govern many traders’ actions.

This approach has saved my bacon more than once, made me a few dollars, and it can do the same for you.

I day trade stocks, but to find my next target stock, I don’t hunch over financial reports the way an analyst does.

I’ll let you in on a secret: Sometimes I don’t even know the name of the company whose stock I’m trading; I’m simply trading the symbol.