The secret to making money in the stock market is to wait patiently until the odds are in your favor before entering into a trade – to learn to wait for a high-probability trade setup (where the likelihood of you making money is greater than you losing money).
To learn how to identify a High-Probability Trade setup – sign up for Market Club’s FREE* no-obligation 10 lesson Trading Boot Camp for an easy-to-understand explanation of the basics of market psychology and technical indicators such as moving averages, stochastics, relative strength, ADX, etc.
Wait for a High-Probability Trade Setup
This is the second crucial step. Having picked a few stocks to monitor, one has to decide when the optimum time to enter into a trade is. This is also a hard lesson to learn for most beginning investors and traders. To find examples from everyday life, we merely have to look for other successful individuals. Successful baseball players do not swing wildly at all pitches – some they just watch go by, and others they wait until exactly the right moment for when to swing their bat. Swinging a few moments too soon or too late can mean the difference between a homerun and a strike. Similar analogies can be found in football, soccer, professional boxing, etc.
In the investing and trading world, it pays to have patience to wait until the ‘time is right’ before one enters a trade. While there are no guarantees of success, one increases one’s chances of winning if one waits until Mr. Market obliges to meet you on your terms. In order to know when the ‘time is right’, one needs to learn the art of technical analysis. Once one learns the details of technical analysis and the various technical indicators, one can decide which they wish to use, as well as use the tools provided by various software programs to create such technical indicators automatically. As noted above, basic functions can be found for free on sites such as Google and Yahoo, alternatively, there are many software programs that have the basic features that the free sites have, but also have other sophisticated features not found on the free sites. Many brokerage firms now have such technical analysis built into their web platforms, as well as the ability to inform you by email, pager or other electronic communication when certain triggers that you set are met. However, no amount of sophisticated software can make you a better investor or trader – just as having a fancy car will not make you a better driver!
Beginning investors and traders often assume that they need to trade constantly to make money. This is akin to the ‘if you work harder, you will make more money’ ethic commonly taught to us by our elders as children. When dealing with Mr. Market, it is more important to ‘work smarter’ than to ‘work harder’, and we do this by finding ‘High-Probability Trade Setups’, and then deciding which of those is the best choice for our money at the present time. A High-Probability Trade Setup is one where the likelihood of you making money is greater than you losing money (remember there is still risk in the trade, you are merely attempting to minimize the risk). We use technical analysis to find such High-Probability Trade Setups. When it comes to technical indicators, they may be broadly divided into ‘leading indicators’ and ‘lagging indicators’. A leading indicator is one which foretells of what might happen (the key here is ‘might’ – not guaranteed). A lagging indicator is one which confirms what is happening (the key here is to remember that what is ‘done’ can be ‘undone’ just as easily). To find High-Probability Trade Setups, we scan our Stock Watchlists to find stocks that meet the criteria we’ve set for the leading indicators we follow, and then monitor these stocks to find those in which a lagging indicator confirm the stock is moving in the direction we wish. Popular leading indicators include the Stochastic Oscillator, Relative Strength Index, and the Williams %R. Popular lagging indicators include a variety of simple and exponential moving averages and the MACD (moving average convergence divergence) indicator. I use VectorVest’s technical analysis module to scan my Stock Watchlist for stocks that are meet my specific trigger criteria. There are far more indicators than investors and traders are able to understand and use effectively, and often beginning investors and traders get lost in the search for the ‘perfect indicator’. There is no such thing – one only needs to learn how to use a few indicators well to be able to make money in the stock markets. A good book to read more about this is ‘High-Probability Trading Strategies’ by Robert Miner. You can also find more resources at ‘Investing and Trading Resources’.
Next Steps
To learn how to identify a High-Probability Trade setup – sign up for Market Club’s FREE* no-obligation 10 lesson Trading Boot Camp for an easy-to-understand explanation of the basics of market psychology and technical indicators such as moving averages, stochastics, relative strength, ADX, etc.
Also, check out the Chart School and ‘Investing and Trading Resources’.
Once you identify a high-probability trade setup, it’s time to Initiate a High-Probability Trade with an Automatic Exit Plan!
Happy Trading!
JonLuc
*Savvy readers will probably be asking “Where’s the catch? Nothing in life is free” – the truth is that Market Club does hope that once you have seen what they can offer, you will sign up for a paid subscription. However, as mentioned in How To Trade, the right trading system is the one that works for you, and only you can decide whether it is the one for you; but, the FREE lessons and FREE videos are indeed free.
