Thoughts on trading and the market

Some of my thoughts on trading and the market:

General:

The market is not a kind place. Only the strongest/luckiest will profit. The formula to success will lie in employing good TA( technical analysis), FA, money management, risk management and emotional control.

Always do your own research and analysis before making decisions on whether to buy or sell. Don't always take analyst's recommendations for what they are. People might have their own motives or intentions for their stock calls.

Remember, the bottom line isn't about how many more winning trades than losing ones you have, but how much you make when you win and how much you make when you lose.

Technical analysis:

1. Price and volume are the purest forms of information available. Everything else is derived from these 2 variables. So always look at price and volume before looking at everything else.

2. Don't chase a stock simply for the sake of chasing it, unless there are supporting technical indicators( eg. breakout in price and volume)

3. Look to volume as a supporting indicator. Increasing volume confirms the trend. Decreasing volume on increasing price shows that the trend is suspect.

4. A complex system isn't necessarily better than a simple system. A simple system based on price, volume, trendlines, S&R and Moving Averages deliver clearer signals and better returns than a complex system.

Trading:

1.Always trade with an edge. If you don't think a trade has a >50 % probability of success, then it's not worth taking.

2.Trading more isn't necessarily better than trading less. Consistency is the key. If there is no good reason to trade, don't trade.

3. Always have a Target Price (TP) and Stop Loss price in mind before you enter a trade.

4. Try to take trades with a risk-reward ratio of at least 2:1

5. Sometimes try to see the bigger picture- the long term view over the next 6-12 months. Don't be overly focused on the short-term. More money is made from investment over the long run than from trading.

About the market/cycles:

1. Stock markets move in cycles. The stock market is a leading indicator, forward-looking by 6 to 9 months. The market usually bottoms out or peaks before the economy. So buying stocks when the news is all good may not be a very good idea.

2. Blue-chips are normally the first counters to rally, followed by small-caps and penny stocks. The penny stocks are usually the last to rise, often preceding a correction.

3. Look at investor sentiment as a contrarian indicator. Quite reliable at predicting market tops/bottoms. In Mar 2010 the % of bulls was only 2%, whereby the market soon bottomed.