If you follow this strategy, it takes only about 5 minutes to make an informed decision on whether to buy the stock, at what price, where to set a stop-loss, and profit target. This eliminates a lot of sweat from your decision-making process, which means that you can greatly increase the number of your quality buys.
Quick Decisions, Big Gains
In a world where time is as valuable as any currency, wouldn’t you want to learn how to make quick, effective investment decisions? And what if I told you it could take as little as five minutes? Yes, you heard that right. Five minutes might be all you need to spot your next big opportunity in the stock market.
Understanding the Market’s Mood
S&P 500 Index ETF:
NASDAQ 100 Index ETF:
It all starts with a look at the big picture. The S&P 500 and NASDAQ are above their key moving averages, indicating an overall uptrend. Why does this matter? Because 3 out of 4 stocks tend to move in the same direction as the market. And those few that don’t? They usually just stray temporarily. So, how can you leverage this information? Stay tuned as I break down my recent decision-making process.
A Real-Life Example: Buying JP Morgan Chase
On May 1, 2024, I bought shares of JP Morgan Chase & Co. (JPM) at $192.06 each. Why was this a safe buy? The EMA 21 and SMA 50 lines were hugging the price tightly, acting as robust support levels. This allowed me to set my stop-loss just below these averages, minimizing potential losses while giving the stock enough room to fluctuate.
As you can see from the picture below, there was a nice and clear cup base last year. Since the depth of the base was low and there was not much price fluctuation, this indicated that the stock had the potential to go up.
Also, on the right side of the chart, there is a flat base forming. That’s a bonus to the fact that the price is very close to the key moving averages:
Setting Goals: Why a Profit Target Matters
And when it comes to making money, setting a clear profit target is crucial. For JPM, my target was the $230 mark and stop-loss at 180 level. This setup offered a favorable 1 to 3 risk/reward ratio.
As shown in the picture above, it was an early entry. It is okay to purchase a stock later, near the last high of the price.
But what other factors influenced my decision to buy at this point? Let’s dive into those details.
Key Decision Factors
- Relative Strength (RS) Rating: JPM outperformed 88% of the market, with its RS line also trending upwards, signaling strength.
- Market Conditions: The overall market uptrend supported my decision, like a wind at my back.
- Industry Ranking: Although JPM’s industry rank was 34 out of 197, it was still within the top 50, making it a strong contender.
- Institutional Ownership and Market Accumulation: Both of these were trending upwards, showing strong confidence from big players.
How Much to Invest?
Deciding on the size of your investment is crucial. JPM now makes up about 9% of my portfolio. I plan to increase this position once the stock crosses the $200 level, aligning further investment with positive price movement. And what about the risk? I’m only risking about 0.52% of my portfolio’s value with this trade.
What’s Next?
By the end of this article, you’ll have a clear picture of how simple yet effective strategies can lead to successful investments. And isn’t that something worth spending five minutes on? What will you do with the next five minutes of your day? Maybe it’s time to start looking for your next winner.
GENERAL STOCK REQUIREMENTS
Choosing the right stocks isn’t a game of chance; it’s a deliberate strategy. This time, with a plethora of options at my fingertips, I could afford to be pickier. So, what were the non-negotiables?
First off, industry leadership was paramount. I zeroed in on stocks from the top echelons—specifically, the TOP 10 out of 197 industries. Why? Because these represent the crème de la crème, the TOP 5% leading the charge. It’s not just about being good; it’s about being outstanding.
Next, the foundation matters. I looked for stocks with base depths signaling strength without overextension—ideally, between 10-20%, stretching up to 35% for those in a cup pattern. It’s a balance between stability and potential, ensuring our picks have solid ground beneath them.
Moreover, the up/down ratio needed to be above 1.0, a clear indicator of upward momentum. Similarly, the trend in institutional ownership couldn’t just be stable; it had to be climbing. These are the signs that savvy investors are not just watching but actively betting on these stocks.
The RS line and rating were the final seals of approval. An uptrend in the RS line and a rating of at least 85 out of 100 ensures we’re backing winners, not just participants.
By setting these stringent criteria, we’re not casting a wide net; we’re spearfishing for the best. In a sea of choices, we’re not looking for just any fish; we’re after the prize catches that promise not just to survive but to thrive.
TERMS AND DEFINITIONS
EMA 21 Calculates the 21-period exponential moving average, highlighting short-term trends.
SMA 50 Averages the price over 50 periods, showing medium-term trends without overemphasizing recent data.
SMA 200 Averages the price over 200 periods, revealing long-term trends by treating all data equally.
Industry Rank Investor’s Business Daily’s system that ranks industries 1 to 197 based on performance. It guides us in CAN SLIM TRADING towards leading sectors.
U/D Ratio Measures stocks closing up versus down. A ratio above 1.0 indicates bullish sentiment, important in CAN SLIM TRADING.
RS Rating Ranks a stock’s performance on a 1 to 99 scale. I look for at least 85, showing strong momentum and growth potential.
RS Line Compares stock price to the market, plotted as a ratio. We seek an uptrend, indicating outperformance and strong momentum.
Volatility Measures how much a security’s price fluctuates over time. High volatility means large price changes, indicating risk and potential reward.
Institutional Ownership Trend indicates whether the stock is under accumulation or distribution by the institutions.
EPS (Earnings Per Share): A financial metric calculated by dividing a company’s net profit by the number of its outstanding shares. It indicates the amount of profit attributed to each share of stock, serving as a key indicator of a company’s profitability.
Wrapping It Up
In conclusion, the art of quick decision-making in stock investments isn’t just about acting fast—it’s about acting smart. With a solid understanding of market trends, precise entry points, and clear goals, you can make informed choices that not only save time but also enhance the potential for high returns. Remember, the key to success in the stock market lies in leveraging the right information at the right time. Will your next five minutes be the stepping stone to your next big investment? It’s all in your hands.
