The moment of frustration has arrived and Bill just can’t see where he is going wrong. As far as he is concerned is picking up good opportunities, and planning them out but as soon as he executes the trade, the market shifts and the tide goes against him. Bill says to his coach “in hindsight I am always buying near the top. How can I ever win?”
Do you recognise this scenario? Are you making trades that just don’t produce profits and trying to work out just where you have gone wrong? The fact is that whilst you may well be planning, you may well not be doing enough preparation to secure the profits.
The fundamentals of trading are at face value, pretty simple. Find a stock that is going somewhere, get in at a low price and sell out when it has gone up so you get a profit.
Ideally the market will be full of over eager amateurs who don’t know the rules of the game and they inflate the stock even more. A perfect strategy, right?
Well no, as it has a foundation that is primarily dependent on chance unless you have fully done your homework. It is the preparation that takes away the guess work from hoping that you have entered early enough and that you get out ahead of hitting the new levels of resistance.
So what is it you need to do to make sure you have done enough? Well in part it will depend on what type of trading you are doing and what your objectives are as there are some differences between the needs of a long-term trader versus swing trader.
However the fundamentals of investigating the company you are proposing investing in remain the same. It is these elements that can help give the edge on your strategy over others in the same market.
Fundamentally you are looking to identify for each individual company what are the factors that generate a price fluctuation and what the typical movement looks like.
Naturally, there won’t be one single element so the items that are worth investigating further are specifics such as investigating the price cycles and clearly identifying the past price support and resistance levels.
The issue is to identify the causes. Then there are the specifics of the company itself in terms of the products it sells and the market sector within which it operates, as well as seeing if senior management are currently trading in their own stock actively.
Then there are specific financial elements for the company that can help identify an opportunity such as a history of failing to meet the forecasts for any given quarter, then go on to far exceed the expectations in the next quarter. In this case the ideal is to be able to spot the missed quarter as being an opportunity to buy low and then cash in when the general trading population get hyped up with the excessive results the following quarter and push the price up beyond the sustainable level. Only with preparation and in-depth research can you spot such opportunities for what they are as opposed to being a company in trouble.
The majority of traders enter into the game convinced that it’s just a question of picking a stock and backing it to win. They don’t see the complexities involved in the markets or the intricacies that can make the difference between success and failure.
What you need to do is question whether you are doing enough to win and accept that preparation is what turns you into a successful trader and stops you being like Bill.
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