Chapter 2-4 General Guidance

First and foremost, always remember to adhere to the basic fundamentals.  Putting one self in high probability trades time and time again is the key to finding consistent success.  Try to trade stocks with good charts and always go with the trend of the stock, as well as the market.  Furthermore, it is imperative to practice solid money management skills, as this is the key to surviving the learning curve all must go through when starting.  Following the basic fundamentals is the underlying key to becoming a successful trader.

Market Action (estimated times)

While the market can be unpredictable at times, generally there is a method to the madness that is the stock market.  Understanding when and how to trade the natural daily progression of the market will improve your trading exponentially.  The market is most volatile from 9:30 am to 10:45 am.  That is when most moves are dramatic and sharp.  However, even though the market slows down from that point on until around 3:00 pm when typically volatility picks up again, there are opportunities for great trades.  You must learn to develop a scrupulous eye though in order to prevent churning.

Below is a breakdown of how a typical trading day unfolds.  Keep in mind that these times are estimated.  Furthermore, during different months of the year market activity historically increases/decreases causing changes in these times.


Time of Day

Activity Level

9:30 am – 10:45 am

active trading

10:45 am – 11:45 am

engaged Trading

11:45 am – 2:30

cautious trading

2:30 pm – 3:45 pm

engaged trading

3:45 pm – 4:00 pm

active trading



Money Management

Before trading a share in the market, a trader must first develop a money management plan.  After all, implementing a trading strategy is only as good as your escape plan.  While we will dive into this topic in much greater detail in the upcoming chapter, take time to review the rules below as a starting point.  These rules are the backbone of any solid money management plan.

  • Always keep in mind the 3 to 1 reward to risk ratio.  For every cent you risk in a position, you should expect to make 3 times that if the trade is profitable.
  • Always stay true to your exit!  Do not let losses get out of control.  The idea is to cut off your losing positions as soon as possible and to let your winning positions run.
  • Do not double down on losing positions.  Instead exit immediately and look to find a better entry point.
  • Try to learn as much as possible every day about the market in order to excel your learning curve.  That means trade every setup that you see develop and actively watch the market when you do not see a pattern in order to possibly discover new setups.
  • Review your trades numerous times after you’ve exited your position in order to learn valuable insight on whether you simply entered the wrong direction, prematurely exited, or entered the correct direction but at a bad entry price.

Stocks to be very careful trading

It can be difficult for a new trader to get acclimated to the stock market, mainly because of capital.  Quite frankly, like most things in life, we learn by making mistakes.  However, that can be extremely costly for novice traders.  So what can someone new to trading do to avoid this from occurring?  While there is unfortunately no way to avoid the learning curve of trading entirely, an educated trader can decrease the time and depth of the learning curve by implementing solid fundamentals and rules passed down by those with experience navigating such terrain.

Below is a list of the type of stocks a novice trader should use extreme caution when trading or, better yet, avoid entirely during the very early phases (for example: the first month or two) of his or her trading career.

  • Stocks with less than 750 thousand shares traded daily on average
  • Very thick stocks that trade more than 10 million shares daily on average
  • Stocks over $100 due to wide spreads and thin books
  • Sector driven stocks such as home builders, oil, and gold as these stocks tend to trade as a whole rather than individually
  • News driven stocks, as well as stocks that have released earnings that day, especially if the stock has made a move of over $3 or 5% on the day (due to the wide spreads with extremely unpredictable and volatile moves)

Characteristics of a Poor Stock Choice

The following charts contain easily identifiable characteristics that lower the probability of a successful trade.  We will first highlight each of these poor qualities, then show you a stock that successfully contains all of the features we seek when trading.  Please watch the video which accompanies this lesson in order to review these charts in greater detail.