Trading

Trading in stock is relatively higher risk than investing as apart from having a good strategy, one needs to be discipline and well versed in risk management in order to minimize loss.  Though the notion of "Buy Low, Sell High" is applicable, it is also possible to do a "Buy High, Sell Higher" or "Sell Low, Buy Lower" action.  The main aim is to follow the market trend and trading accordingly, that is long a position if market/stock is on an uptrend and short a position if market/stock is on a downtrend.

Most commonly, people use Technical Analysis, TA to help them to decide when to buy or sell a stock.  TA in general is looking at charts and using of indicators to assist in "predicting" of the direction and execute buy/sell accordingly.  The risk in doing so is chart pattern is past data and using past data to predict the future is never 100% accurate.  The norm of "Nobody Can Predict The Future" is always true as such, maintaining strict risk management ( cut loss ) is a must to minimize the loss.  Some of the commonly use technical indicators are Moving Average, RSI, StochasticMACD, ADX, GMMA and Candlestick.  Some also look at shape formation to Head & Shoulder, Cup & Handler, Wedge Pattern, Triangle Pattern and Flag & Pennant to trade. The main concept of TA evolves around Support and Resistance basically.  Getting a book on Technical Analysis will be helpful in learning all about how to use TA to trade in stock market and in depth knowledge of the pros and cons of all the TA indicators.




Books on Trading with Technical Analysis


Trading requires strategy and TA is just a tools set inside your strategy.  In laymen term imagine trading is a like fighting a war, to win the war, one needs army and weapons and most important of all without a good fighting strategy, the army and weapons that you have is as good as none.  TA is just like the army and weapon in trading.  Read up on books of successful traders like Daryl Guppy on his trading strategy would be an ideal starting point for a trader.




Books on Daryl Guppy's Trading Strategy
 
 
 

In relative to the higher risk involves in trading as compared to investing, a set of golden rules must be enforced by any traders as part of their strategy so as to minimize the risk involved. 

1. Be very discipline
2. Always consider the downside risk before looking at profit whenever a position is opened, that is set a cut-loss point
3. Do not over-trade as over-trade could lead to emotional trading which hinder proper judgement
4. Always stay focus and stick to your trading strategy or plan

The most commonly mistakes made by traders and those should be avoided.

1. After bought, price dropped to even hit cut loss level but decided to hold on and hope later price can rebound back and if price continued to drop further, stuck
2. Following blindly on others' trade, so and so bought this stock, price moved up and just followed
3. Trade on speculation, listening to rumor that might have good news coming up and bought hoping that news is true and after released on news, price shot up.  Most of the time will result in loss.




How To Spot A Stock Market Bottom

How To Spot Stock Market Tops


Trading Is A Science But With The Skill It Could Turn Into An Art

No comments:

Post a Comment