For instance, a new trader (investor) in the stock market may buy a stock because its price decreased a lot. This may work if one were to buy a hard commodity such as gas at the pump, a laptop, clothes, etc, but it does not typically work in the stock market.
Here is a system that would be more reasonable to test with the phone to show you ways you may have not considered before. Buy only stocks (never use real money unless it is risk money and you have tested the effectiveness of any method including the method described below), according to the following recipe:
- Create a list of stocks that have a positive earning. Never include a stock with negative earning.
- Reduce your list of step 1 to only stocks for which the latest earning is higher than earning a year ago.
- Reduce your list of stocks that passed step1 and 2 even further. Now your stock must be such that its price today is greater than its price one year ago. This may sound counter-intuitive but if the price price is higher than a year ago it means that it has been performing well, and if it continues to do so you may be selecting a good stock.
- Buy a stock only at a pivotal day for the market and for the stock. A pivotal day is the first day when the price of your stock reaches a price higher than the higher price it reached the day before, and the low of price of the day before is lower than the price of two days ago. Do not under-estimate this rule.You essentially want to buy your stock after a retreat, and only when the retreat has ended. The rule described in this step aims at achieving it.
- Allocate only 5% of your capital to any one stock.
Test the recipe of this article for a long time before considering trading real-money. Also seek professional advice and learn from professionals. To get you started I am including a link to a trading course containing some elements related to this article. The methods described therein work for any financial market including stock trading as well as forex trading.
