Now you know what it takes to make money in the stock market.
1) "How to Pick the Best Stocks" - the same stocks that produce big profits for some traders will cause big losses for others. The best stocks - for you - are the stocks that fit your particular style and method of trading. Volatility, market cap, and "trendiness" are among the important characteristics to consider. Most importantly, select stocks with a historical tendency to perform well in your chosen time frame.
2) "How to Win in Any Market - Bull or Bear" - The majority of people believe that a Bull market is the only market where profits can be made. Not so. You can make money whether the market goes up or it goes down.
Bull and Bear markets are relative terms. To have any positive value they must specifically apply to YOUR situation, and more specifically, to YOUR time frame. The US stock market is made up of a huge number of smaller markets. All of the different sectors, industries, or any other groupings represent potential Bull or Bear markets. Even an individual stock can represent a unique Bull or Bear market - all by itself.
The only market that matters is the one that directly affects you. Bull and Bear markets are simply price trends - up and down. This is important because trend reveals continuous price movement in the direction you wish to trade. Locate Bull or Bear markets in your chosen time frame. This allows you to take positions WITH the trend instead of against it.
3) "How To Enter & Exit at the Right Time" - After choosing the stocks you want to trade, selecting charts and locating trends within your time frame, the next step is to use entry methods that allow you to enter positions in the right conditions and at the right time.
The "right conditions" exist when odds are good that prices are about to move in the desired direction and that the move will be long enough to give you sufficient profits. We call this a "Setup." The "right time" occurs when price begins to move in the direction you expected - AFTER the right conditions are met. This is the Trigger.
"Always know when to get out before you get in."
Even though Exits usually don't get the same attention as Entries, they are far more important. To "Exit At The Right Time," you need an Exit Strategy that minimizes any initial losses, maximizes your profits, and minimizes the amount of profit you give back.
Although there are many ways to accomplish these goals, Exit Strategies that use Initial Stops and Trailing Stops based on average price movement, volatility, moving averages, or other support & resistance levels tend to work very well.
4) "How To Maintain A Winning Edge" - If we don't know our edge, we probably don't have one. Find out what makes up YOUR edge. It's usually a combination of factors, like choosing stocks that match your methods, locating high probability setups within your time frame, applying specific entry triggers that confirm your expectations, following a proven exit plan and controlling risk. The only way to know for sure is to dissect your methods, and then analyze them.
Track and measure your results - specifically your Win/Loss Ratio, Profit/Loss Ratio, and Cost Per Trade. Many traders mistakenly think they need a huge advantage. The good news is that your edge can even be relatively small - so long as it produces a consistent Win/Loss Ratio, AND your Profit/Loss Ratio is positive enough to produce sufficient profits after transaction costs. You can do very well in the market with a reliable edge and a steady stream of trades.
5) "How To Control Risk" - This is by far the most important of "The Five Things You Must Know To Make Money In Stocks." To make a profit we have to take risk. However, we always want to be certain that the risk is reasonable. This means taking measures to prevent large losses from seriously injuring our trading account.
There are two factors that should always be included in a complete Risk Control plan. First, an Exit Strategy that uses "stops" to eliminate "unplanned" losses, and second, a Position Sizing routine that prevents unavoidable losing streaks from causing serious damage.
- Bottom Line:
Here's how you can do it!