To succeed in the stock market, you must be clear on the stock trading strategy the best fits you and your trading goals.
The strategy is the concept that underpins your stock trading system - this is what gives you the edge in the markets. Some common examples include:
Many stock trading strategies can make money, BUT, because of your own psychology, beliefs and preferences many of these may not work for you. You must have a valid trading strategy to guide your decisions otherwise you will lose money in the stockmarket.
Most new comers to the stock market (or any other financial market for that matter) feel impatient and just want to start using a profitable stock trading system. After all "I just want to learn to trade and make big money" right? BUT this is symptomatic of why most people fail miserably at trading...most people want the quick answers that make the mega bucks. BUT without an understanding of how your stock trading strategy fits your psychology you are unlikely to trade profitably…because it doesn’t fit YOU!
This is not because the strategy doesn't work. It is because when you try to consistently act against your beliefs and self image it causes psychological discomfort (pain). The result of this psychological pain is generally self sabotage but at the very least it will cause stress and costly mistakes.
For example, new traders often ask "Can you show me how you trade?” but this is the wrong question to ask. Everyone has different beliefs, experiences, preferences, fears, strengths etc. This means that just because someone profitably trades one strategy and system, it doesn't mean you will feel comfortable following it.
Most new traders are not willing to think about their own psychology and preferences before launching into trading. The path to successful trading and making big money is first to understand yourself, and then develop your own approach that is specifically designed to suit you. The great thing is this is actually very easy - especially if you have someone who can help you learn stock trading!
Once you have identified the strategy that fits you best, you can design a positive expectancy trading system and structure your portfolio and position sizing to meet your (written) objectives.
Only by knowing yourself and your preferences, beliefs, objectives can you select from the many different strategies that do work.
What is the impact of selecting your stock trading strategies well vs poorly?
Appropriate strategy for you:
Inappropriate strategy for you:
The first step to finding a strategy that suits you is to understand a little more about yourself by doing a new trader 'Self Assessment Questionnaire'. This simple questionnaire takes about 10 minutes to complete and will give you a lot of useful material to help you select the best trading strategy for you. Complete this now before moving on.
After you have completed this you will have an understanding of what you have to work with and what some of your relevant preferences are to help select the right trading strategy for you.
Now let’s look at the main trading strategies to choose from. Remember, you simply must have a valid strategy which suits you.
Below is a link to a detailed description of some common stock trading strategies and the personality traits required. Review these and see if it is clear to you what strategy is right for you:
Once your ideal strategy is clear you are ready to move onto designing your stock trading systems.
If you are not sure what stock trading strategy appeals to you then I strongly suggest you read Jack Schwager’s outstanding 'Market Wizards' series of books shown below. These books are interviews with the best and most successful traders in the world who employ many different trading strategies. The traders describe their approach, philosophy, lifestyle, beliefs and much about the edge that they use to make money in the market. They will be extremely helpful in identifying trading strategies that do and don’t appeal to you.
In summary, here are the recommended actions to help you find the best stock trading strategy for you:
Now that you have identified the best trading strategy for you to adopt (at least for your first trading system) you are ready to return to learn what complete stock trading systems looks like and how to build your own. You can do this with confidence that you are starting on a path with a strategy that will suit your personality and ideal lifestyle.