"You do not trade the markets—no one does. Now that might sound surprising to many of you. But what you really trade are your beliefs about the market"
--- Dr. Van Tharp
When speculating in the financial markets, one needs a framework to develop a strategy around. For me, the bedrock is that markets tend to trend (up, down, sideways) and go through series of contraction (price ranges become narrow) and expansion (price moves become large). Upon that bedrock is the foundational concept that markets tend to trend once they get going, and that period can be much longer (higher and lower) then anyone thought possible
My edge is focusing on bases exhibiting accumulation and volatility/price compression patterns in strong stocks with prior uptrends if possible. Initiate a position as it moves from a period of contraction to expansion (Breakout) and a new trend emerges and ride that trend using profit taking and proper sell, buy, and add on rules.
I have gone over and accumulated thousands of examples over the years.
As a position trader (like myself) the base breakout is our bread and butter. There is a saying in trading; "the bigger the base, the higher in space"
I look for clean bases in fundamentally strong stocks/groups exhibiting volatility and price contraction and enter when price moves through a pivot point on volume.
Its a tool developed by John Carter of simplertrading.com. Its a fantastic tool to help me identify price compression points. Click below to see John himself explain it on youtube.
Continuation pivots and power plays are alternative methods to get involved in stocks after they have already started their move. I look for stocks that broke out of sound bases, moved higher in an orderly fashion and "pause" to contract again and build out a shorter continuation base. These can be entries to start a new position or add to an already existing one if you caught the original breakout.
Trading is intensely personal. The journey of a market operator is unlike any other profession I have seen or experienced. In the end, you will end up with a system that is truly unique to you.
The above mentioned setups and their variations were developed over many years, incorporating different techniques learned from different traders. I took bits and parts of entry parameters, risk management skills, selling and add on rules, trend trading and general market principles from lots of places and created a methodology that fit my beliefs of markets. That journey was, and is... amazing. I can not tell you how you should proceed. All I can do is share with you what I did and works for me. I believe building a process to operate in the markets its essential. Below are recommended books for serious operators who want to pursue a path of stock market speculation.
How to Make Money in Stocks- William O'Neil
From one of the greatest growth stock investors of our generation, you will learn:
-- What common traits the best performing stocks in history shared
-- How to enter, exit, and manage positions
-- How to avoid bear markets and identify market bottoms
-- See over 100 chart examples of these patterns playing out over and over
How to Trade in Stocks by Jesse Livermore
From one of the most famous operators who ever lived, you will learn:
-- His pivot point approach
-- His formula for money management, emotional control, and his time element
-- Examples of his blunders and success.
-- His approach to the general market, leading groups and stocks, and so much more.
Secrets for Profiting in Bull and Bear Markets by Stan Weinstein
Stage analysis. Never buy a stock in a stage 4 downtrend again. Just read the book please
Trading in the Zone by Mark Douglas
Mark provides the glue that will keep your life and mental state intact while you walk down this road. You will learn:
--Mental aspects to keep you balanced
-- What trading with an edge is all about
-- Thinking probabilistically to cut down emotional states of fear and see more clearly
-- Common mental mistakes that lead to losses and failure
-- What core beliefs the most successful traders have in common
By no means is this an exhaustive list. This is where I started. This gave me the fundamentals I needed to dig deeper, look wider, refine more, discard most, and eventually find my path. I find it very difficult to talk to anyone about speculating/trading/investing if they have not at least read these four books.
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