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3 Important Steps To Win The Stock Markets

By Alfred Fernandes | February 11, 2009

With the recent collapse of financial markets most of the stock market traders and investors have lost all hope and have started exploring alternative business fields. But some smart and shrewd investors have started their research on selecting the best of the scrips for the next horse race of bullish phase. We don’t yet know when the markets start reversing but the reversal usually takes place when all lose hopes and things look gloomy. This is just the vice versa of hyper enthusiasm of all at the market peaks. In other words looking at the prevailing gloom and panic stock markets may make a smart reversal within 8 to 12 months.

Here are three most important factors for those who wish to make rewarding investments shortly. There is no alternative or shortcut for the proper study, analysis and research. So to be a successful stocks investor or trader research the following 3 major factors:

1. Sector Analysis:

Select the best industry sector in this recession hit economy and find out the best performing 2 to 3 companies in that sector. These will be your winning horses in the next bull-run. There is no use selecting a company just relying on its name  and past glory. The profitability and the earning power of that company might have deteriorated recently.

2. Identify the Stock Market Trend:

Some experience is required to identify the market trend. Either one has to do his or her own Technical Analysis research to identify the market trend or rely on good stock magazines and media reports. Also in that prevailing trend you can identify those good companies from the selected industrial sectors in a better sort of trend. So when you identify the trend also select the best trended stocks for more rewards.

3. Ride the Trend, Be Its Friend and Flow with the Current Trend:

When you have identified the trend take the trades only in the direction of trend. If you know the trend is down only take selling trades when the market makes correction and finds weakness or resistance at certain previous high levels. Never buy in a down trend. The rewards will be more if you sell at higher resistance levels when the market corrects itself after a steady fall. In a bull market your action should be vice versa – only buy when the market dips to a low in correction and finds support. For example markets after the falls in January 2008 entered into a down trend and the traders who sold and went short since then always made good profits.

By following the above 3 rules you will reap rich rewards. The most important basic control for any trade or investment is to keep a stop loss. If you short-sell at higher level the recent high price level should be your stop loss. So also when you buy the recent low must be your stop loss. When you place a stop loss order you know what is your maximum risk. I must emphasize here – never ignore or amend the stop loss. With a fixed stop loss you can calculate your risk to reward ratio for that particular trade. If you follow the stop loss rule with discipline your trading or investment life will be sportive and enjoyable. Discipline is a must for stock trading or investment, without which the only guaranteed result is destruction and chaos.

Topics: Stocks Investment | 1 Comment »

One Response to “3 Important Steps To Win The Stock Markets”

  1. Price Trading: How to Catch the Best Price for Optimum Trading Profit? | Online Stock Trading Alfred Online.net Says:
    March 9th, 2009 at 11:05 am

    […] 3 Important Steps To Win The Stock Markets […]