How to be a profitable trader is more than just picking stocks

“Give me a good stock pick!” “Tell me what to invest in.” What should I buy?” On the surface these all sound like good questions for someone wanting to know how to be a profitable trader. But that is assuming that those questions actually has something to do with successful trading. But really what trading is all about is managing the risk on your trade. Every post I write, in some shape or form, I highlight this very important aspect of trading.

how to be a trader

What most traders get hung up on is finding “stock picks”:

“What is the next stock that will breakout?”

“What stock is running right now?”

They even have a sophisticated alert system that when a stock breaches a certain price point they have bells and whistles that go off for them to get in the trade now.

They buy low dollar stocks because it is believed that it is only the low dollar stocks with crazy spreads on the bid/ask that will lead them to the profits that they’ve only dreams of, and that they need big percentage trades to make any decent amount of money in the stock market.

But I am here to tell you that these are all horrible misconceptions about what it means to be a profitable trader in the stock market.

So this is what I am going to do, I am going to lay out 3 strategies that will teach you how to be a better trader and a more profitable one at that!

How to be a trader: Trade from the top-down

A lot of traders ignore completely the price action of the broader market. This will never end well. If the market is heading south or in the midst of a strong sell-off, that is not the time to be adding new long positions. Simply because the stock managed to trigger an alert for you to do buy the stock, or because a stock pulled back to the price level you have long desired to trade it at does not always mean that you should. Price alerts do not mean you should pull the trigger automatically on the trade. 

Don’t fight the market, doing so, causes you to have to trade stocks that don’t provide you with an optimal edge. When you are long, it is because you see the market going up. When you are short, it is because the market is demonstrating a willingness to go down.

Does that sound simple? Why yes, it does!!!

It should be simple. When the market is up, you trade up, when the market is down you trade down. Fighting the market is a sure-fire way to lose money in the stock market.

I have been waiting for years now for the stock market to give us a legitimate correction. It hasn’t done that. Does that mean I am going to be bearish on the market, just because I want it to? No. I am going to be long. And that is because the market dictates that I be long.

So when you approach trading, make this part of your routine: 

  • Make sure you can identify the main trend of the stock market on the daily chart.

  • Determine if the trend is strong enough to warrant you adding more exposure to your portfolio based on the current trend of the market.

  • Identify a sector and corresponding industry that is strong or poised to rally.

  • Find a stock in that industry with a strong chart that provides you with a trading edge and then trade it.

This seems overly simplistic but trading needs to be and should be simplistic in order to keep the emotions controllable and the trades manageable.

How to be a trader: Avoid alerts and low dollar stocks

Traders in general tend to be obsessed with two things:

1) Setting Trade Alerts and trading them automatically


2) Trading low dollar stocks.

Let’s tackle each of these. I could have made these two separate bullet points, but I actually think they go hand-in-hand as one habit tends to beget another habit, thus the reason why I have combined the two here.

Trading alerts have been popularized by penny stock “gurus” over the years where once a stock hits a certain dollar value on a breakout, they have their “alert” system tell them that the price level has been reached. So that if a stock is trading in a consolidated pattern and breaks out of it above $1.05, then the trader will set a price alert at $1.06.

Once that price alert is triggered, the trader automatically will enter into a long position.

Like I said, most traders who practice that are those that are trading low dollar stocks. The reason for this is because the lower dollar stocks tend to have more volatility and when it pushes through a resistance level it can pop quite quickly. Therefore the trader needs to quickly act in order to get in at an optimal price ahead of the rest of the crowd that is fighting for a small amount of shares at the same exact price level.

And by quickly acting the trader isn’t able to give much thought to broader market action and how and whether market and industry conditions warrants a trade in the stock that just triggered an alert.

how to be a trader 1

Trading off of alerts on low dollar stock is very reactionary, and doesn’t allow you to go through some of the simple thought processes that should be respected when planning a trade – in particular the process I highlighted with the previous strategy. Because what happens, is that when a price alert goes off, you are inclined to trade it regardless of whether market conditions are favorable for it or not. Whether you should be adding more exposure to your portfolio or not and whether price action provides a tradeable edge still. 

Like playing the same lottery numbers every week, you are afraid to stop trading the alerts out of fear that the next trade will be the “big winner”

Price alerts compels a trade to take action then and there and there is much more that goes into whether a trade should be taken than just some predetermined price threshold being reached on the chart. When that is your sole consideration, and for most penny stock and low dollar traders, the price alerts is what matters most, you open yourself to an unusual amount of head fakes and false moves because you are not considering other circumstances beyond the stock itself that can lead to those undesirable outcomes.

Consider what I believe to be the main influences on a stock’s price action:

  • 50%: Market conditions

  • 30%: Sector and industry influences

  • 20%: The actual stock that you are trading  

So while you are trading solely off of a price alert, you are ignoring 80% of what is going on around you. You have to pay attention to the market and industry influences. If you are trading a biotech stock, and Gilead Sciences just reported a horrible earnings report that is causing the entire industry to sell-off, but you happen to have a price alert that manages somehow to go off, and ignoring the industry related influences, you decide to go long and strong a biotech stock that is only going to head-fake you and put you right in the middle of a bad trade.

And let’s face it, how many times have you have a stock that you are watching, close right below a price alert, only for it to trigger at the open the next day, you get suckered into buying it, and then find yourself watching it sell off the rest of the day at a big loss for you?.

Let me tell you this: I pass up on gobs and gobs of quality trade setups on a daily basis simply because the market conditions and sector/industry influences don’t warrant it.

They all have to line up. When they don’t you are fighting the market simply because a little bell and whistle went off on the chart.

Instead let the market conditions and sector/industry influences trigger you to find a good stock chart that you can trade with a quality edge.

That is the top-down approach – and that is the approach that you should take when trying to profit from the stock market.

How to be a trader: Taking profits depending on the stock market conditions

How you book profits will go a long ways in determining how profitable you are in the stock market. Here are two simple concepts to keep in mind when determining where and when you want to book those profits.

1) In trending markets, keep raising the stop-loss

2) In sideways markets book the profits aggressively.

This is a good starting place for traders. It isn’t a rule of thumb that says you must follow it regardless, but when you are uncertain about whether you should hold or sell, then I would definitely fall back on those two principles. Just recently, I traded the stock Univar (UNVR). They had reported earnings that morning, and in doing so broke out of an inverse head and shoulders pattern. The market conditions looked solid that morning, as well as the industry’s chart (chemicals). So I look at this company, and they’ve raised guidance but haven’t really made a massive move yet on the day. So I go long on it at $30.96. The stock performs brilliantly, but I also realize the market has been trading in a sideways price pattern for nearly two weeks now. Getting 4% on a trade intraday is not a bad way to go, and once the earnings euphoria wears off the next trading session, it may even see a pullback.

So I book the gains the same day that I make the trade at $32.20 for a 4% profit!

Not bad, right? 

RELATED: 3 Trading Strategies for Increasing Your Stock Market Profits

Then you have other situations where the stock market is rising day after day, and when there are pullbacks they are minor. Price action is healthy, so instead of booking profits aggressively, you ride the stocks as high as they will let you go, and in the process you regularly raise the stop-loss until the stock has enough and forces you out of the trade.

The key is knowing your market conditions and letting that drive your profit-taking decision making!

Becoming the trader that profits

I could give you a hundred more profitable methods for increasing your bottom line, but in the process I would be turning this post into a full blown book and as a result you wouldn’t be reading this post right now at this moment. So the key here is to take the handful of strategies that you ahve learned here and implement it into your trading. Just boiling this post down to the basics, you don’t have to change your trading all around, instead the three strategies I have outlined will keep you out of trades that you shouldn’t be in and avoid staying in trades longer than you should be.

Profits can always be made in the stock market. Your job is to figure out how to implement a strategy that can maximize those profits.

Putting to use the concepts I have outlined above will help you to do that better!

Another way to do so is by joining the SharePlanner Splash Zone. Here you will learn what it means to profit consistently while minimizing the risk that comes with trading in the stock market. The community of traders working together on a daily basis is unparalleled anywhere else, and you’ll get every trade that I make sent directly to you via text, email and in the chat room as well, while providing you with rationale, stop-loss, price target and price rationale for each trade.

So sign up today and get a Free 7-day trial to the Splash Zone and start trading live with me and get that trading strategy fine tuned and profitable!