How to identify trading opportunities when analysing a stock

Money Morning

[Click on the picture to watch Murray analyse a company that has just popped up on his quarterly scan. You will learn how to find compelling trading opportunities using pivots to define shifts in momentum.]

In today’s video update, I give you a comprehensive technical view of a stock that is trying to turn the corner after a few years of weakness. It is a great example of how I use the buy and sell pivots to outline large shifts in momentum.

The cornerstone of an effective trading strategy is defining exactly where you are proven wrong and making sure your stop loss is below that level. You want to be proven wrong as quickly as possible so that your risk/reward on the trade is as high as possible.

For example, if you can only risk $1,000 on each trade that you make, the size of the position you put on will be decided by the size of your stop loss. If you have a strategy, that means you can be proven wrong by a 10% fall in the price of the stock, you can buy $10,000 worth of that stock because 10% of $10,000 is $1,000, which is the amount you are willing to risk on the trade.

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Hunting a shift in Momentum

If your strategy isn’t proven wrong until the price falls 50%, then you can only buy $2,000 worth of the stock.

Your outcomes are intimately tied to your ability to work out exactly where you are proven wrong. You want to enter a stock as close to that level as possible so that you can leverage up the size of your position.

The stock I analyse for you today came up on my quarterly scan and I haven’t had a chance to do a detailed fundamental analysis yet, so this is not a recommendation to buy, but is instead a useful case study for you.

You will see how I define waves using quarterly buy and sell pivots. Calculations are then made based on the waves to search for good risk/reward entry points, and targets are based on retracements of the waves.

Using mean reversion to help you to become free carried on a trade as quickly as possible is the name of the game, and from there you just sit back and hope for the best.


Murray Dawes,
Editor, Alpha Wave Trader

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Murray Dawes is the Editor of Pivot Trader and contributing Editor at Money Morning. He was one of five, from 5,000 applicants, chosen for a graduate position with the Swiss Banking Corporation — now part of banking giant UBS. The bosses quickly cottoned on to his potential and pushed him up the ranks as a futures broker on the floors of the Sydney Futures Exchange. Murray later broke out on his own and developed custom trading systems to trade leveraged financial instruments like futures. Due to his success, Murray became the ‘hired gun’ trader for Australia’s rich and famous. Today, Murray runs a trading service through Fat Tail Investment Research to help everyday Aussie investors use his advanced trading methods.

Money Morning Australia