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Based on the experiences from technical trading tactics with many top analysts and traders, here is a Top 10 List of observations to pass along after 23 years in the trading business. You may recognize some of these thoughts as market clichés, but they have stood the test of time and should be helpful for you as well.
When trading the breakout of any stock market chart pattern, it is important to continually monitor the stock to determine whether it is performing the way you anticipate. Never forget that stock market technical analysis is an art, not a science. If a stock isn’t acting as expected, it is best to get out at a sensible, predetermined level instead of relying on hope. When in doubt, get out!
A common mistake of novice traders after taking a large loss is to succumb to the temptation to “make it all back” by initiating high-risk trades. This thinking hinges on the gambling mentality that afflicts many people in the market.
To become a successful stock market trader, it helps first to understand the way the various stock market identities or trader timeframes coexist, intersect, and interact. To establish a foundation for this understanding, we must first define the different market identities and timeframes, as well as the general motivations of each.
Most bull (up) market cycles last two to four years and are followed by a recession or bear (down) market and eventually another bull market in common stocks. See Bulls vs Bears for more information.
These are top ideas in which many professional traders have learnt about the markets and trading through years of trading experience. One of the problems with preparing a list such as this is that many important points now operate subconsciously to the experts.
There is big money to be made on the short side of the stock market. But the public is not short-sell minded. We advise a toe-to-the-water approach. Try it slowly and see. It’s not so cold. In fact, it’s fine once you get in. You gain confidence that you can handle any market direction! But know the ropes first.
Investment objectives are like a rudder on a ship. The choice of which investments to hold is determined by your objectives. In other words, know what you want to accomplish from your investments allows you to manage your portfolio more effectively. In addition, your objectives determine the purpose and time period for the investments.
Stock screening always boils down to finding the answer to one fundamental question:
Which stock (among all stocks) should I purchase right now?
Of course, finding the answer to this question requires asking many more specific questions about stocks – questions that are difficult to answer without the help of computerized databases.
The basis of the argument that dividends don’t matter is simple.
The financial theory, referred to as the Miller-Modigliani Theorem, stats that the market value of a firm is determined by its earning power and the risk of its underlying assets, and is independent of the way it chooses to finance its investments or distribute dividends (source).
Using the SEC definition of an insider as a director, manager or employee of the firm, you can compute the percent of stock held in a company by insiders. In companies like Microsoft [MSFT] and Oracle [ORCL], in which the founders still play a role in management and have substantial holdings, you will find insider holdings to be a high percent of the outstanding stock.
There are numerous people who will tell you how to make money in the market. But what you don’t often see, however, are ideas written on how to lose money.
“Cut your losers and let your winners run” is common stock market trading advice, but how do you determine when a position is a loser?
How do you see the world?
Do you consider yourself an investor or a trader?
Most people think of themselves as investors. However, if you knew that big winners in the markets call themselves traders, wouldn’t you want to know why?
As an investor, you must be aware of the stock market scams. The following are two of the most common stock scams.
The Pump and Dump
The pump and dump is one of the easiest and most common ways of taking money away from unsuspecting investors. Although it is illegal, the use of the pump and dump has actually increased because the Internet has made it possible to reach millions more people.
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