Is there really a formula for winning trades? YES.
What is it? Let’s break it down…
One of the most common challenges new traders talk to me about is finding winning trades, or good stocks to pick to trade. New traders often wonder what makes a good stock to invest in?
There is actually a formula that helps you discern winning trades.
Keep in mind… NOTHING in the stock market is guaranteed. Trading involves real risk.
But this is a blue print will give you a good starting point to find trades that have that winning potential, although it will not 100% guarantee it.
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In the past, I did a podcast about the 3 things that move the market. This includes the technicals (looking at stock charts) the practicals (life events), and fundamentals.
Let’s go DEEPER into understand those 3 elements that shift the market –
Because when you combine them and put all 3 together, that is the answer in how to find a winning trade inside of the stock market.
Technicals
Charts reveal a predictable, repeatable patterns that you can recognize to trade.
Reading charts is like the weatherman.
The weatherman looks at maps, charts, and radars. When he combines all of these factors, they can predict the weather with about 70-80% certainty.
We all look at our weather apps on our phone and from time to time we may be disappointed, BUT the majority of the time, they are able to predict the weather.
Why?
Because of repeatable patterns they detected on the chart.
They didn’t wake up and say, “When I go on the news today, I am going to say it’s sunny because that’s what I feel like”.
It’s the same thing with the stock market –
The technical analysis is the ability to look at a chart and say, “Do I see a pattern here?”
(Register for my free “Profit from the Stock Market” Webinar or take our Foundations of Stock Trading course to gain a deeper understanding of how to read charts)
Once you determine if the stock chart is in an uptrend, downtrend, or moving sideways, then you have to determine the next level of understanding…
Is the stock at the support level or the resistance level?
You have to get good at understanding these lines and easily recognize them.
Support is the price that people like to BUY at, and resistance is the price that people have determined they don’t like the stock anymore and they SELL it.
There are LEVELS – buy and sell. Support and resistance.
That will help you determine which level you should be playing them at – should you be bullish? Or bearish?
If you don’t know that coming in… it’s like not knowing if it’s going to snow or be sunny tomorrow.
Should you wear snow pants? Or shorts?
You need to know the “temperature” to understand what tools you will need in order to make the most out of the trade.
Researching the Practicals
Practicals include news items and life events.
For example, in recent times we may check on: “Are the FEDS speaking again? Any news on the trade wars?”
You would also keep in mind recent disasters, a presidential election, etc.
Those are practical events that have the ability to move the market.
Without this knowledge, you could buy a stock, and the next day a news item is released which plummets the market or that stock.
Practicals reveal events coming up that may change the course of where a stock is headed – which is why you cannot JUST rely on reading the chart.
When you know what is going on, now you have a long-term view.
You can plan your trades around the news event and not be shocked if there is a dip. You can even work it where you leg in a trade and buy a little now, and then when the news hits and it goes back up, buy more later.
There are so many strategies you can utilize when you know what is going on in the country and with politics in the world that may affect the market.
Fundamentals
Once you have recognized a stock chart pattern you would like to trade and have researched the news… now it is time to research the company itself.
Fundamentals include knowledge about the company that you are looking to invest or trade in.
You would ask questions like:
- Is the company generating cash flow?
- Is this company also generating a profit?
Just because a company has cash flow does not mean they are making a profit. As an example, Tesla (TSLA) has been operating at a loss for some time. Do they sell cars? YES. But they don’t make profit.
If they are making profit, now it’s time to go deeper:
- What are their earnings per share like?
- Is it increasing or decreasing?
You can look at their balance sheet and see if their expenses are increasing, because that my lower the earnings per share. It may appear they are making more revenue, but maybe their expenses are also increasing.
You need to research all of those components to have a formula for a winning trade.
The Work is Worth it
You may be reading this and thinking, “Wow… this sounds like a lot of work”.
You need to look at the chart and see what pattern the stock is in and determine if it is a good time to buy, you have to be aware with what is going on around you in the world, AND you have to research the fundamentals of the company itself.
And then on top of that, you need to give yourself enough time to be right with each trade.
When you think about it…
All of this is already put together for you, depending on what type of broker you use and charting software you use.
Most people do not know WHERE to look, and then even when they find it, they do not know how to interpret what they find.
You may already be aware of a lot – for example, you may already know the news and what’s going on with certain companies from around the water cooler at work.
So when you break it down, this knowledge is not as far away as you might think.
This formula is not difficult to attain – you just need to have the right tools. All of this is available for you.
If you chose to learn how to read a stock chart and financial report (which does not take long to learn), then you can take this formula and find winning trades.
They only win if you put in the work for it. You may need to do a lot of research to find the winning trade – BUT you can, with this formula.
We can help you with Power Trades University, when you’re ready.
If you have any questions about getting started, shoot us an email at info@thebrownreport.com or send us a DM on instagram.