Defensive Investing - A Game Plan For Success
In sports, the general strategy is that teams should play defensively because a good defense wins games. It is commonly believed that a defensive approach opens up offensive opportunities. Transposed to the stock market, Benjamin Graham, the “Dean of the Stock Market” wrote a book nearly seventy years ago on defensive investing that is still must-read material for investors. Defensive investing helps traders through not only the good times but also on days like Black Monday.
Black Monday occurred on October 19, 1987. In just a couple of weeks, the stock markets plummeted 30% including a 508 point drop on Black Monday. To understand its severity, on September 17, 2001, the market only experienced a 7% drop for the first post-9/11 day of trading. Both events were bad, but they hold valuable lessons for successful traders today.
A drastic fall like either of these can make even the most grounded investor consider jumping hastily to sell assets. Defensive investing requires that an investor understand his or her stock portfolio and search it for vulnerability. After that, fundamental analysis is key because understanding the stability of the market and your stocks makes you less exposed to such extreme stock volatility. Understanding defensive investing helps an investor to be prepared for bad times in the market.
Is that all you can expect from defensive investing? Absolutely not! Remember that in sports, a good defensive can open up offensive opportunities. Get ready for some offense here! Traders that do not follow their stock trading plans open themselves up to emotional reactions from greed and fear. When investors dump a company’s stock, the stock prices fall because of the sell-off. This creates incredible opportunities for others to purchase stocks well below their actual market value. When the slide ends and the market stabilizes, these defensive investors are in for very handsome returns on their investments.
Defensive investing also fits very well with a stock trading system like Japanese Candlesticks. Since the emphasis in defensive investing relies on long term investing, you need stocks that are more conservative and follow very dependable trends. Technical analysis with Candlesticks allows you to see exactly where your stocks have been and gives you a very good idea of the track in the immediately future. Such a system allows investors to move very confidently in both good times and in bad times.
Because Japanese Candlesticks is a powerful stock charting tool, it can help an investor find a subtle trend that indicates which way a stock will move. Used as part of an overall stock trading plan, Candlesticks can provide the type of analysis needed to find conservative stock trends and help traders to invest defensively.
One thing is sure about the stock market; nothing is sure. Everyday there are twists and turns that that can attempt to lead a trader away from his or her trading plan. A defensive investment plan will keep your investment secure and allow you to go on the offensive at just the right time. If used correctly, this investment philosophy will help you to “win” in the stock market.