Archive for the ‘Trading’ Category
I’ve lost count of the number of times I’ve heard trading described as a zero sum game. Believe me, it isn’t. Let’s imagine a commodity in which there are only 5 active traders, each trading $10,000 and watch what happens.
Analysis is simplifying, breaking down things into parts, picking out strands and elements. Analysis is comparing unknown things with things that are known. Analysis also involves picking out relationships and putting them back together as a whole.
ETFs are becoming an increasingly popular investment because of low costs, liquidity and tax efficiency. They also offer individual investors the chance to diversify in ways that would previously have been beyond their reach.
It’s generally accepted that to be successful in stock trading we need to hold rising stocks for as long as possible and sell losers quickly. This is summed up in the trading maxim:
“Cut your losses and let your profits run.”
Do you have the instincts of a successful trader? Most people don’t. It’s not so much that they hate uncertainty – but they hate losing.
Your answers to two simple questions tell you whether your gut instincts are those of a successful stock trader.
Regardless of timescale, a stock’s price direction is always determined by supply and demand. Long term supply and demand are driven by fundamentals – company earnings, return on equity, dividends, etc. Short term supply and demand are more readily manipulated.
An obvious failing of our first trading system was the high number of times it indicated you should buy and sell shares. In these circumstances, brokerage costs would be high. You can reduce the number of buy and sell decisions if you lower the volatility of daily prices.
There are tens of thousands of stocks worldwide you could invest or trade in. How do you pick the best? You need a screening system – a series of sieves, each of which excludes stocks that don’t match your criteria. Eventually you will be left with just a few stocks to examine in detail. If you want to design your own trading system, how can you do it?