Trend Trading: Seven Simple Steps to Success

Some time ago I watched part of an infomercial which had a bottomline message that the best way to make money in the stock market was to be an active trader, buying and selling equities frequently, as opposed to holding on to a stock in the hopes of long term growth. Having always been warned of the lunacy of day trading, I dismissed the infomercial as just another get rich quick scheme. But late one night several weeks later, the infomercial again blipped across my screen as I mindlessly channel surfed, in hopes of finding something interesting to watch at that late hour. The producers had the good sense to hire a sexy spokesperson, which held my attention on the subject longer than normal.

These few minutes of added viewing allowed me to discover that the system was not based exclusively on day trading, rather trading on opportunities as they arose. It might involve holding on to a stock for a few hours, a few days, or a few weeks. In another display of good marketing sense, the company behind the infomercial offered a free two-week trial to their real-time bulletin board service. Not one to pass up anything free, I promptly signed up and was immediately connected.

Wow. Information and news flashed scrolled up my screen in real time, calling out more plays than I could hope to keep up with. I traded on paper to begin with, but soon enough I was using real money from my existing trading account, actually making money. I did not want to be without the service. But to be a full on member, the cost was over $400 per month. For some folks, this isn't a problem, but I never had a large amount of money to play with, so I only stayed with it for a few months. Mind you, if I had $25,000 or more to play with, there's no way I'd be without the service. My financial condition required that I find a cheaper solution, and, based on what I learned in my brief time as a member, I came up with the following strategy, a sort of poor man's alternative to using the high-end service.

Please use common sense if you decide to try this system. It may or may not be right for your trading strategy, so be sure to trade on paper before committing any real funds:

1.) Confine your trades to stocks listed on NASDAQ.

2.) Find out which companies will be reporting earnings after the trading day, three days hence, (Monday = Thursday; Tuesday = Friday; Wednesday = Monday, etc.)

3.) Find stocks that have, by at least 1 cent, a positive whisper number.

4.) Consider only stocks trading between $5 and $18.

5.) Winnow the stocks by average daily volume, choosing the top three.

6.) From these three stocks, pick the one that has the highest market cap.

7.) Buy it at the close; sell when stock has risen 2% from your purchase price. In no case would you hold onto the stock past the earning report, or if it drops in price 2% or more.

There it is; the seven simple rules that can put extra cash in your account.