Best Investment Advice
When reading articles on trading websites and in an occasional investment newsletter, you see it over and over. Subscribers are looking for that one "fantasy" stock pick that will make a $500 investment turn into enough money to make them wealthy. Others say they have a fool poof investing system, except that when you test it for yourself, you find that it only works in a bullish market. And why aren't there as many day trading/investing systems around now as in the late 1990's?
What is rare though, are investors who actually have an investment plan based on solid stock investing concepts. A precise set of rules telling them when they should buy, how long they should hold, and where to place their stop loss. This is what separates the successful investors from the rest. How much should an investment strategy like this cost? Only a few minutes of your time!
It's not difficult to let your emotions get in the way of your stock market investing strategy. Happiness results when our research pays off with a profit, and sadness and frustration occur when we go against our own logic and place that sell order. We've all been there. Unfortunately, we've done that quite a bit.
It's important to remember that the best investment strategy is to preserve capital. It makes sense when you read it, but how many times have you watched a minimal loss turn into a much more significant loss just because your instinct told you it would move higher? And how many times did you turn the loss incurred above into an even greater loss?
A 50% loss means you have to acquire a 100% gain just to break even. While the world of penny stock investing supplies opportunities, few of them will give you a 100%. With medium to large cap investing, it takes a lengthy period of time with a successful company to get that 100% return.
Stop turning your small losses into larger ones by not adhering to your stock trading plan.
What should you include in your best investment plan?
1. Starting capital. It's important to become familiar with how much money you are putting at risk on a typical day. It's a possibility that you could invest in a business, and find out later that day that its shares are being delisted. Just because you invest a few thousand dollars at the beginning of the day, doesn't mean you will have the equivalent sum at the end of the day. Set limits based on an amount you are comfortable with. Preserve capital.
2. How much money are you prepared to lose per trade? Successful investors ask themselves this before they invest. For example, if $1000 is an acceptable amount for you to lose today, it becomes easier to determine where your stop loss should be.
3. Where is your stop loss? Are you setting your stop loss based on share price? Are you setting your stop loss based on the total amount you are prepared to lose today? Are you setting your stop loss based on a percentage of the trade or a percentage of your trading capital? Do you have a plan for a trailing stop loss?
4. Entries - at what point do you enter a trade? Is it based on a price? Do you try to time the bottom of a trend? Are you placing a buy stop to take advantage of momentum? Did you hear exciting news about a particular company this morning? Did you find something of interest in one of your stock market newsletters?
5. Did you sleep well last night? If you're having a lousy day and wished you would never have gotten out of bed, then you should not turn on the computer. Your emotions will be more intense, and you will trading based on decisions derived from greed and fear, instead of your best investment plan.
6. Duration of the trade. How long are you planning to stay in the trade? Are you a participant in stock market day trading? If you're doing a day trade, keep it a day trade. Don't rationalize holding a position longer if the stock doesn't go in the direction you would like it to.
All of this is the best investment advice that anyone can offer. And it didn't cost you anything, but may save you thousands of dollars.
Market Direction: Oh those lazy, hazy, crazy days of summer! One of the obvious factors of summertime market moves is witnessing the market movement in the first 30 minutes of trading and then waffling at that level until the final hour; a clear indication that most investors are away from their trading screens. There are still good price moves going on in this market. They just happen to occur in the first 30 or 40 minutes of trading.
The sage axiom is that the first hour is for amateurs and the rest of the day is for the professionals. Candlestick analysis is not concerned with who is buying or selling, it just gives you the indication of which way those buyers and sellers may be pushing a price. All that means is at the price move is going to occur predominantly in that 30 or 40 minutes of trading. If the candlestick signals and price patterns can be identified, then taking advantage of that price move as close to the open as possible becomes a compelling strategy.
As can be seen in the Portal player chart, the Cradle pattern/Scoop pattern could be visualized. When it gapped up through the 50 day moving average on Friday, it showed two important factors. First, the 50 day moving average was not going to act as resistance and second the handle of the scoop pattern forming in late June and early July was not going to act as resistance either. No matter how slow and sluggish trading may become for most of a trading day during the summertime, the price patterns will still work effectively in the first trading hour. If this is where the daily activity is going to be experienced, take advantage of it by entering the position as early as possible during the day. Click here for Training on the Scoop pattern
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The Dow is now trading right near the resistance level that it has experienced over the past two months. Stochastics are in the overbought condition. Today's action in the market provided evidence that the trend should possibly pullback, profit taking or at least test the 50 day MA.
DOW
The NASDAQ on the other hand has stochastics that still indicate some more upside potential. Although it traded a little bit lower most of the day, it maintained above the 20 day moving average. This provides a simple analysis that the 50 day moving average is still the potential target. Unless something dramatic happens in world events over the next day or two, the uptrend should still be intact. Some selling in the Dow is possible at this resistance level. However, if the NASDAQ still indicates a little bit of strength, the overall trend should be in a very slow upward direction.
These produce market conditions where the strong bullish charts should still be held with an eye towards having a few short positions ready to be placed.
Private training sessions - The next private training session is being scheduled for September 9 and 10th. If you have interest or would like to get more details, please e-mail Pat at Pat@candlestickforum.com.
These training sessions provide a very strong insight into how to use candlestick analysis to your advantage.
Chat session tonight for members at 8 p.m. ET
Good investing,
The Candlestick Forum Staff