Continuation from yesterday…….An appropriate trading approach and a number of fixed trading rules is just as important, if not more so, than your overall technical, mathematical and fundamental analysis. In essence, by implementing strict trading rules and procedures you are able to take all of the guess work out of the equation. In other words, strict trading rules make sure you pull the trigger exactly where you should.
The rules below are based on a simple strategy of getting in and out of various stocks at the right price and time.
Avoid Low Priced Stocks: While it is possible to make large amounts of money with such stocks, for the most part, cheap stocks remain at low levels for extended periods of time. At times forever.
Avoid Slow Trading Markets and/or Stocks: These are the financial instruments that are stuck in a trading range. Do not invest in them until and unless the trend is broken, either to the upside or to the downside.
Concentrate On Fast Moving Markets and/or Stocks: This is where most of the money is made over the shortest period of time.
Never Guess: Take the guesswork (gut feeling) out of your decision making process. Develop strict trading rules that are followed 100% of the time. You should never guess if you have got it right. Let the market and/or your trading rules put you in and take you out.
Always Follow The Main Trend: You will always make money if you follow the main trend. Either up or down. Remember, stocks are never too high to buy if the stock market is going up and they are never too low to sell if the trend is pointing down.
Always Use Stop Losses: I cannot overstate this enough. Always use stop losses to protect your capital. Let the market prove if you are right or wrong. In the meantime, your capital base will remain safe.
Buy At New Highs: Believe it or not, but buying at new highs is the most profitable way to make money in the stock market. Most people believe that they must buy at the lowest price or in the valley. That couldn’t be further from the truth. By buying at the new high you are moving with the main trend.
Sell At New Lows: In a similar fashion, selling or selling short at new lows is the best possible way to exist a stock. It confirms that the trend has changed while giving you the ability to exit your trade at a good price. More importantly, it allows you to trade with the trend and not against it.
To Be Continued On Monday….