2020-12-11 • Updated
Here are some rules that may guide you to a good choice. Note its objective is to find a safe choice rather than a risky one – hence the criteria.
Now, you’d be right to notice that these criteria filter out all start-ups, most of the hi-tech or any kind of “frontier” company that promises big growth but still may turn out to be a dark horse. And that will be clever of you: as mentioned before, this strategy is looking for reliable companies to bet on instead of risky adventures.
Therefore, at this stage, say, Tesla or BioNTech will be filtered out – these are too risky and volatile at the moment, although they enjoy the spikes of demand – and their share prices – they’ve never done so far.
Which companies fit then? Nvidia, Amazon, Apple, Google, Mastercard, eBay, Netflix – all those that have been there for quite a while, not fresh-born, but not necessarily really old ones, those which have already established themselves and have a solid share of the market, those which are a part of our life by now. We are used to them, and they are big and successful enough already so that you can think that they would stay with us another couple of years ahead.
Now, is that it? Is the choice done? No, not really. The next step is the tactical positioning: you screen those big successful companies for local drops. Why? Because a local drop is somewhat a “guarantee” that it would reach the recently left high in a while. The logic is that you buy a fundamentally good company, but at a lower price – just because the market feels bad today, or because the company is going through some trouble temporarily, or any other local reason. It shouldn’t be something strategic like a threat of a bankruptcy, or a major change of senior staff, or a bad takeover, or unfavorable acquisition, or a big problem with state authorities. It should be a local problem that just temporarily presses on the share price so that you can take it low, but with a fundamental “guarantee” that it will be overcome.
Therefore, essentially, you look for a good, stable company that’s having a bad week. That’s it. Examples? Here you go.
It recovered completely from the virus hit, and it’s had its all-time high in August – it was $138 per share. Dropped since then, currently trades around $125. Is it a good buy? It should be. Why? It’s Apple: everyone wants a MacBook, or an iPhone, or an iPad, or another i-thing. Sales are good, the future is bright. Will Apple make it? Yes, probably. And now, it trades at a discount: more than $10 lower than the all-time high. It means, if you buy it now, you are almost guaranteed to make a 10% growth to that $138 per share.
An old giant. It’s got through the bad period last spring, now it’s up. Relatively up – and that’s exactly what you are looking for. It trades at $330 these days, down from a local drop, and still climbing up after a tactical slide in October. Will it get back up to $360? Most probably, yes. Why? People pay here, pay there, all of that is powered by payment systems like Mastercard and Visa. Apart from China, the rest of the world is almost monopolized – or, academically speaking, oligopolized – by these two payment processing and clearing companies, one of which is at your service in MetaTrader. Use it, it’s a good shot.
Amazon is another good option. Why? First, it’s second to none in its industry and in absolute value. Second, it’s Amazon – will people stop using its services? No, the opposite: in the context of deliveries coming to the forefront of business functioning these days, Amazon appears to provide indispensable services. Therefore, it can count on lasting customer demand in the near future – and hence, on seeing its shares go up. Currently, it’s above $3,000, down from the summer’s $3,500 – even better! Get it now and see it gain those $500 of difference in a matter of a couple of months. Plus, don't forget the holiday season should spur Amazon's performace. So Merry Christmas and Happy New Year!
Now, you may ask why not Tesla or Pfizer. Both already pretty established, enjoying high demand and good perspectives. For Tesla, as much as for any company like it or in a similar market situation: it’s no good to enter at all-time highs, or when the stock is booming. I’m not saying it’s a bad buy in general. But we are speaking tactics: are you ready to enter the market now just to see the stock bounce downwards (probably wiping out your account) before it makes another all-time high? Probably not, and rightly so.
See, you need to make realistic projections even for a booming stock. Tesla goes in accelerating pace upwards – but still, it will inevitably make dropdowns to catch up with its own “inertia”. $500 may be a center of gravity for such a dropdown before another upswing takes place.
With Pfizer – same thing, but in a different context. This vaccine hype made it leap above $42 after weeks of trading at $36. Entering now? Seems like a suicide. Will it rise later on? Very possibly, yes, especially if everything with the vaccine goes well. But in the meantime, another dropdown to $39 seems a closer scenario which you don’t want to experience with your money.
So, be tactical and strategic at the same time. Choose good stocks in a local drop to have them cheap and make a guaranteed rise in the nearest future. Trade safe!
Don't know how to trade stocks? Here are some simple steps.
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Hello again my friends, it’s time for another episode of “What to Trade,” this time, for the month of April. As usual, I present to you some of my most anticipated trade ideas for the month of April, according to my technical analysis style. I therefore encourage you to do your due diligence, as always, and manage your risks appropriately.
Bearish scenario: Sell below 1.0820 / 1.0841... Bullish scenario: Buy above 1.0827...
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