Category: Trading Opportunities

Where are the US stock market trading opportunities based on technical indicators?

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Maximizing Profits: Trading the Stock Market from the Open to the High

Maximizing Profits: Trading the Stock Market from the Open to the High

Trading stocks from the market open to the high of the day is a strategy many traders use to capture early momentum and maximize profits. This approach, often referred to as the "morning rally," is particularly effective because of the high volatility and volume that occur in the first hour of trading. This article will explore why this strategy is advantageous and how traders can execute it successfully.

Why Trade from the Open to the High?

1. High Volatility and Volume

The stock market experiences its most significant price movements in the first hour of trading. This period sees an influx of orders from institutional and retail traders acting on overnight news and pre-market developments. The high liquidity ensures quick order execution and minimal slippage, which is critical for short-term traders.

2. Capturing Early Momentum

The initial price movement in many stocks tends to be the strongest of the day. If a stock opens with positive news or strong pre-market activity, it often experiences a rapid surge, reaching its daily high within the first hour. By targeting this move, traders can capitalize on a substantial portion of the day's price action without staying in the market too long.

3. Reduced Exposure to Risk

Holding positions for extended periods increases exposure to adverse price movements. Trading from the open to the high (which happens early for stocks used in this strategy) allows traders to enter and exit quickly, mitigating the risk of reversals or unexpected news later in the day.

4. Psychological Advantage

By focusing on a short trading window, traders can maintain better discipline and avoid overtrading. Many traders struggle with decision fatigue throughout the day, leading to poor choices. Limiting trades to the morning session enhances clarity and execution.

How to Successfully Trade from the Open to the High

1. Pre-Market Preparation

Preparation is crucial for success in this strategy. Traders should start by:

  • Scanning for stocks with high pre-market volume and significant price movement.
  • Reviewing overnight news, earnings reports, and economic data that could impact stock prices.
  • Identifying key support and resistance levels using technical analysis.
  • Checking market sentiment and futures indices to gauge overall market direction.

2. Identifying the Right Stocks

Not all stocks are suitable for this strategy. The best candidates are those with:

  • High relative volume compared to their average daily volume.
  • A strong catalyst such as earnings reports, news releases, or analyst upgrades.
  • A history of following pre-market trends into the regular session.
  • Sufficient liquidity to ensure quick order execution.

3. Using Technical Indicators

Technical indicators help confirm trade setups and entry points. Some useful indicators include:

  • VWAP (Volume Weighted Average Price): Helps identify whether a stock is trading above or below fair value.
  • Moving Averages: Short-term moving averages (e.g., 9 EMA, 20 EMA) can provide trend confirmation.
  • Momentum Indicators: RSI and MACD can help determine the strength of a move.
  • Pre-market Highs and Lows: These levels often act as support and resistance during the regular session.

4. Executing the Trade

Once the market opens, traders should:

  • Wait for confirmation of the trend rather than entering impulsively.
  • Enter the trade when the stock breaks above key resistance levels with strong volume.
  • Use a stop-loss to limit potential losses. A common placement is just below the pre-market low or a key support level.
  • Scale out of the position as the stock approaches new highs, securing profits while allowing for potential continuation.

5. Exiting at the Right Time

A disciplined exit strategy is as important as a solid entry. Traders should consider exiting when:

  • The stock reaches a predetermined resistance level or percentage gain.
  • Momentum begins to fade, indicated by decreasing volume or bearish candlestick patterns.
  • The broader market starts to reverse or show weakness.

Conclusion

Trading from the market open to the high of the day is a powerful strategy for capitalizing on early momentum, reducing risk, and maximizing profits. By conducting thorough pre-market research, selecting the right stocks, using technical indicators, and executing trades with discipline, traders can significantly improve their success rate. While no strategy is foolproof, mastering this approach can lead to consistent gains and a more structured trading routine.

Want to gain access to a list of stocks researched every night for open to high (OTH) trading? Become a Most Excellent Investor member.

 

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Why Undervalued Stocks Can Be Your Friend and How to Find Them

Why Undervalued Stocks Can Be Your Friend and How to Find Them

Investing in the stock market can be both rewarding and intimidating. Many investors chase high-flying stocks, hoping for rapid gains. However, an often-overlooked strategy involves seeking out undervalued stocks—hidden gems that can offer substantial returns over time. Understanding why these stocks can be your friend and how to find them can help you build a profitable investment portfolio.

Why Undervalued Stocks Can Be Your Friend

  1. Lower Risk with Higher Potential Gains
    Buying stocks at a price lower than their intrinsic value provides a margin of safety. If a stock is already undervalued, the downside risk is often limited compared to over-hyped stocks trading at inflated prices. As the market corrects itself, these undervalued stocks have the potential to rise to their true worth, leading to significant gains.
  2. Market Inefficiencies Create Opportunities
    The stock market is not always rational. Short-term factors such as negative news, economic downturns, or investor sentiment can lead to mis-pricing. Savvy investors who can identify these mis-pricings can take advantage before the rest of the market catches on.
  3. Compounding Wealth Over Time
    Investing in undervalued stocks is often a long-term strategy. As these companies recover or grow, their stock prices appreciate, leading to compounded gains. For investors with patience, this approach can outperform high-risk speculative investing.
  4. Dividend Opportunities
    Many undervalued stocks belong to well-established companies with strong fundamentals. These companies often pay dividends, providing investors with a steady income stream while waiting for the stock price to appreciate.

How to Find Undervalued Stocksov

Finding under valued stocks requires research, patience, and a systematic approach. Here are key strategies to identify them:

  1. Look at Fundamental Metrics
    • Price-to-Earnings (P/E) Ratio: A low P/E ratio compared to industry peers may indicate an undervalued stock.
    • Price-to-Book (P/B) Ratio: A stock trading below its book value can be a sign of undervaluation.
    • Debt-to-Equity Ratio: A strong balance sheet with low debt suggests financial stability.
    • Earnings Growth: Look for companies with consistent revenue and earnings growth despite a low stock price.
  2. Analyze Market Sentiment
    • Stocks may be undervalued due to temporary bad news, but if the company’s fundamentals remain strong, it could be an opportunity to buy.
    • Stocks ignored by analysts and the media may be mis-priced, offering a chance for keen investors.
  3. Use Value Investing Principles
    • Follow strategies used by successful investors like Warren Buffett. Focus on companies with strong business models, competitive advantages, and competent management teams.
    • Look for businesses with a history of stable performance and long-term growth potential.
  4. Check Insider and Institutional Activity
    • If company executives or major institutions are buying shares, it’s often a positive signal that the stock is undervalued.
  5. Screen for Bargains
    • Use stock screening tools to filter companies based on valuation metrics.
    • Compare the company’s current valuation to its historical averages and industry benchmarks.

Final Thoughts

Undervalued stocks can be your best ally in wealth-building, providing a lower-risk way to invest while maximizing returns. By focusing on fundamental analysis, market sentiment, and value investing principles, investors can identify opportunities that others overlook. While patience and discipline are essential, the rewards of investing in undervalued stocks can be substantial over time.

If you’re willing to dig deeper and stay committed, these hidden gems can be your key to financial success in the stock market.

Check out our "Under Valued Stocks Watch List" here.

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Make Stock Market Volatility Work for You

How To Make Stock Market Volatility Work for You?

Stock day traders actually want stock market prices to make big moves. A stagnant market where prices don't move or move in very small increments means that money invested in such a market is "dead money".

When stock prices are volatile even a stock with a price that ends down from the prior day can make winning moves during the current trading day (intraday) before ending down at the end of the day. An investor buying a stock close to its intraday low and then selling it after the price rises intraday can make a profit. The trick is finding stocks with such a trade set up.

What are the characteristics of a profitable intraday stock?

Volatility over multiple days backed by sufficient volume that shows there is trader interest in the stock. The volatility has to be over multiple trading days with moderate to big price movement taking place during each trading day. The research to find such stocks is already done for you on the watchlists in the Most Excellent Investor membership area.

The psychology needed to trade a volatile market?

Even after finding volatile stocks that meet the criteria for volume a trader needs to have the "guts" to buy into a stock position and hold that position long enough for the price to rise during the trading day. Because after buying a stock at what can be considered a comparatively low price that price can drift even lower before rising above the purchase price. Check out the case study of the stock below from March 23, 2022.

Case study profitable intraday winning stock: Lizhi Inc. (LIZI)

Make stock market volatility work for you
Intraday winning chart for end of day losing stock

Buying stock symbol LIZI at 9:34 AM on March 23, 2922 for $1.78 would earn a profit of between 1.8% - 9.5% if sold anytime between 9:38 AM and 11:56 AM. A profit of between 3.5% and 8.4% could be made if the position was closed (sold) anytime after 11:56 AM.

Every day there are dozens, if not hundreds, of stocks that trade with sufficient volatility like the case study shown above. With proper stock research and trader mentality a volatile market will make opportunity for big profits!

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Combat Stock Trading Company Limitations That Anger Investors

What happens when an investor sets up a profitable trading strategy but the trading company platform (think Robinhood) limits functionality (trading options) for the particular stock being traded? A potentially profitable trading strategy can lose money because volume is an important part of the trade set up and if purchasing of shares is being limited by the trading platform then entering and exiting a trade is hindered before a profit can be taken. As the saying goes, you make money when you buy so the decision to buy and the amount of shares to buy is key.

Recently when the idea of trading shares of GameStop  (GME) went viral it caused so much volatility that some trading platforms like Robinhood placed limits on trading the stock. That angered investors trading on Robinhood due to the fact that a sufficient amount of shares in GME could not be bought that would allow for sufficient profit in the intraday price moves that the stock made. How can traders combat such moves made by stock trading company platforms?

The best way of combating limits placed on trading in specific stocks is to find another stock to trade. Too simplistic? Not hardly. There are thousands of stocks that trade on the U.S. stock exchanges everyday. Many stock traders and investor focus on the price movement of the 30 stocks in DOW. But the DOW Jones stocks are only representative of their respective sectors not of every stock in the sector. If the market (DJIA) is down for a given trading day there are many individual stocks, dozens at minimum, in the broader market that are up for the day.  The same is true for sectors that may be down, there can still be stocks within the sector that are up for the day. The key is to find one of these stocks and trade it.

When a stock receives unexpected interest from a lot of investors, whether retail or professional ones, the volume created in trading it can overwhelm a trading platform used to trade the stock's shares. Clearing all the trades (which is a different subject for a different article) can be problematic for a trading company since the amount of floating shares for the volatile stock may be limited. This may cause a problem for a trading company with limited shares to obtain shares for all investors who wish to purchase them.

Stock traders and investors want to be able to readily buy and sell stocks that are making big price moves so that a profit can be captured quickly. If everyone is limiting their attention to trading the same stock then share availability may be impacted and limitations by trading companies will result.

Since the US stock markets are the most liquid in the world there are always opportunities to be made outside of the viral stocks being traded. Profitable intraday trading happened for more stocks than GameStop when it was red hot. The way to combat the limitations were placed on GameStop, and other stocks, with limitations,  is to find highly traded and profitable stocks that don't have limitations placed on them. There are respectable stock research sites (like this one) that can help you identify stocks with high interest (measured in volume) along with volatility (measured in price movement). Trading in diversified profitable stocks that don't have limitations (yet) allow for quick profits  to be made smoothly.  Happy trading!