A lot of investors have questions on how to trade the markets while maintaining their long term investment prospective. I am a huge fan of long term high yield dividend investing, but you can also earn great returns in the short term as a trader.
Case Study: 10% Return with REDF
When trading, you need a completely different mindset than investing. Your goal is to not to time the bottom or guess the top, but to get in and out with a handsome profit. This requires FOLLOWING THE MONEY, and ignoring fundamental analysis and other techniques that work well with investing.
Rediff.com India Limited provides online Internet based services with a focus on India and the global Indian community. Its Web sites consist of interest specific channels relevant to Indian interests, including cricket; astrology; matchmaker and movies; content on various matters, such as news and finance; search facilities; a range of community features comprising e-mail, chat, messenger, and e-commerce; and broadband wireless content, as well as short messaging services for the mobile phone subscribers in India.
The Sensex index (India's major stock index) was approaching all-time highs, so Indian ADR stocks like REDF and NASDAQ:SIFY went along for the ride too. This is a great opportunity for traders to turn a profit.
Looking at the chart above, I noticed that buyers (with good volume) took this stock to new highs each day. The great thing about this is your entry point doesn't have to be perfect. Just follow the trend, be diligent and you will either profit nicely or incur a small loss.
Exact Steps of the Trade
1. Placed Limit Trade Slightly Above Last Closing of 4.83 @ 4.90 to get in the game.
2. Opened a Stop Loss Order of $4.80 to limit my downside risk.
3. Watched Stock an Hour Later Rise to $4.50
4. Took My Profits at $5.45 giving me a gain of 10% in 45 minutes
When trading, you want to TAKE PROFITS if you know you are doing well. Best thing is you don't have to close the entire position like I did. You can take 50% off the table and let the rest run. Everybody has different risk tolerance, but nobody who takes gains every goes HUNGRY!
Wrapping Things Up + Take Away Points
There are tons of opportunities to profit 10% from stocks like REDF everyday. Now before you go and trade, make sure you are:
1. Finding uptrending stocks and following the trend
2. ALWAYS have risk protection AKA stop loss OR trailing stops in case you guess wrong.
3. Take some profits off the table when you make a nice gain
4. Understand how foreign events, news releases, etc can send stock up in the short term. Then you can uncover your own trading opportunities.
Sure, I am still long NKE and I had a nice 2% gain on Friday 9/24/10. But if you learn how to identify stocks like this on a regular basis, you can use investing and trading together to form a powerful AND profitable punch!