Find The Most Sensible Approach to Trading, and Stick With It

The principle of keeping it simple is a good one for most of life's situations including trading. And while trading skills are not easy to master, they involve simple principles.

Too often, traders experience constant highs and lows throughout their (usually short-lived) trading career. While gains and losses are normal and expected, large swings are usually the result of changing system or technique inappropriately. Finding your niche can really make your trading more consistently profitable. Getting to know a few good trading stocks is likely better than collecting all the potential candidates from recommendations and scans, which can overwhelm the trader.

I advise beginning traders to build a stable of good trading stocks and get to know them and know them well. Pick your favorite 4-8 and back trade them repeatedly. Learn to recognize their patterns of behavior. Does it behave in similar ways around earnings? Does it make clean or sloppy turns? Does it have a tendency to throw certain chart patterns? In doing so, you get a feel for the traders who influence the stock and improve your chances of making repeatedly profitable trades.

The patterns we observe are basically the emotions of all the people involved in the market. The major players are interacting with various levels of traders, brokers, fund managers and the public. This cast of players is unique in each stock or group of stocks, bonds, commodities etc. Hence, unique patterns develop and that is the key. Instead of jumping from stock to stock, you can gain an advantage just by sticking with the same stocks over and over again.

I know someone who had a very narrow group of stocks that he got to know and not only did he learn the patterns, but he also studied the companys' behavior. He knew how they acted around earnings, what products they were releasing, and how their stock responded to economic news. One year alone, he made hundreds of thousands of dollars just trading one company. 

Patterns are there because people are creatures of habit and the market is just people. With 4-8 good pattern trading stocks in the price range you like, there will always be something ready to trade. 

The problems come when a trader chases the latest hot stock or have too many stocks in his watchlist. When you find a group of stocks and one or two strategies that work, stick with it and don't make it more complicated than it really is.


Suggested Further Reading:

Max Keene (Superstocks28 staff)

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