How to trade stocks

2008-03-05T07:56:00.000-08:00

Over the past 2 years I have been trying almost any trading method known to human kind.
During 2007 I saw many traders losing huge amount of money despite the fact that main US indexes on Jan-01 07 were almost similar to Dec-31 07 values.

I came to the conclusion that
while it's nice to hear TV experts giving economical insight,
these experts can never recommend which stock to buy to the average person.
Most of the time they recommend mid/long term "buy and hold" approach of what they consider to be a good company.
The average person doesn't have the skills to "buy hold and manage" stock for long term though.
Even after improving technical and fundamental analysis skills,
I saw portfolios that crashed because of bad practices of risk management, timing and self control.
The average person buys at the top and hysterically sell at the bottom.
Other average person trades against the trend believing that he already found the bottom.
Eventually he loses his confidence and sell at much lower price.

What to buy?
I usually buy stocks with pattern like this (I recommend something like 2007 pattern, not necessarily the stock itself).
On a bear market period, I like to find stocks that continue to go up even on days that main idexes move down.

When to buy?
I buy stock on its way up.
I buy on breakouts to new all-time high when the volume is much bigger than average.
This way I participate in insider information without even reading the news.
Many times, after a breakout, I wait for a short term pull back.
I draw a trend line that connects historical bottom peaks.
I buy, when the price reaches close to the trend line and start moving up again.

Alternatively, I buy stock at a clear, high volume breakout, after a long term downtrend.
In this case I connect historical high peaks in order to determine breakout of a trend line.

How to manage?
I always limit my loss (unlimited profit). After buying a stock I put stop-loss right away and adjust it as the stock goes up. This method is more art than science. You need some time to practice. I never keep any position without stop loss. Never sell stock that goes up.

Invest-ABC

How to trade stocks