Do You Have A Viable Method For Making Money In The Stock Market?

There are many theories that propose to offer good stock market trading help. The big questions are: When is your position determined to be a losing position? On what basis do you determine that you be compelled to cut your loss? At which time do you take a profit? When is the stock favorable to buy?

Unfortunately, many people spend most of their time trying to determine how much profit they will make when the stock goes up. The correct time to make this judgment is BEFORE you put the position on. Make your decisions when you are clear-minded and analytical. You can most accurately and objectively decide upon your parameters then. Whatever rules you decide upon, you must not set them after you are in the trade.

Why? It is essential to separate the emotional side of your brain from the analytical side. When you are in a trade that is going against you, you feelings of pride, fear, and helplessness overwhelm you. You don't want to be "hoping and wishing" that the trade turns around. If you start to deem yourself a loser, your future trading performance will suffer too. It is impossible to make an open-minded decision about a losing trade while you are in the trade.

Consider this trading method for your use.

1) The Correct Chart Pattern

When you are examining your prospective trade, execute these tasks for a bullish trade: 1) Have your trading software, provided by your broker, draw the 8, 21 and 30 Exponential Moving Averages. Look for a stock that has pulled back in such a way that the 8 and 21 EMA lines are less than the 30 EMA line. In fact, the 8 EMA must be lower than the 21 EMA which is lower than the 30 EMA line. This should look more or less like a bow-tie. Use your imagination, or better yet, put these EMA curves on a chart and and you will see it.

2) Use Bollinger bands

Within the software provided to you by your broker, display Bollinger bands on the chart. Look for the stock to close lower than the lower Bollinger band. That means it closes outside the lower band. You might have to modify the length of the Bollinger band setting from the default of 20 to something like 12. Look at how the stock has pierced the bands in recent history to make this setting. Historically, the stock should close outside the lower band from time to time.

3) Look For The Reversal

To conclude that the stock has reversed, and is going up, wait for the stock to close over the high of this lowest trading day, i.e., the closing price of today is higher than the high of the lowest day. The lowest trading day is probably the day before today, yesterday, but it might be a couple of days earlier. The stock is now appropriate to buy.

4) Draw Support and Resistance Lines

You are not done yet....Draw your support and resistance lines on the chart for a greater understanding of where the stock is apt to go. Use these lines in this example to set the lowest level it is likely to retrace to. Set your stop loss there. (Drawing the support and resistance lines is outside the scope of this article.)

Another trading method is to merely decide upon a stop loss at a 7% loss point. You will also desire to set your profit taking point, too. A good trading method is to sell 25% of your shares when you have a 15% profit. When you have a total of 50% profit, sell all or almost all of your shares. You might want to leave some shares in the trade if the stock is performing well. Stocks don't usually move up this far without a pull back, but it does happen. By the way, you can execute your limit orders for taking profits, and your stop loss order right after you have successfully purchased the position.

5) Print A Copy Of The Chart

Take the time to copy the chart by printing it out on your pringer. Record your profit taking points. Write down your "get out of Dodge" stop loss point. Also, write down an explanation of why you are getting into this trade. These points are important, if you want to learn to trade by a system and not make the same mistakes over and over again.

6) Store The Printout In Your Journal

Date the paper and 3-ring punch it. Place it in your three-ring notebook. You now are using a trading system that you can document. You have a trading method rather than merely a "feeling" about a stock.

Summary

You have documented why you purchased this stock. You have recorded the logic as to why to make the buy now. You have a profit taking point and a stop loss point. You have added your immutable data to your trading journal. Most importantly, you have done this in an unemotional, analytical, and intelligent manner.

Now get out there. Stop losing, and start winning.


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