When you play the ponies, how do you pick a winner?  Is it based on the name of the horse?  Do you use the jockey on the beast’s back?  Or do you study the odds based on how the horse has performed in the past?  Maybe you pick up a badly photocopied tip sheet from cigar chomping fellow with a beer gut, chili stained Hawaiian shirt and a battered fedora.  Something tells you how to bet on horses when you visit the race track.

So what criteria are you using to develop your stock trades?  A lot of traders go with their gut, based on news, market reaction to the news, and a little bit of hope and ignorance.  Or they listen to a pundit and guru who claims to do all of the analysis for them.  The problem with that is since the guru is on television for the entire trading day, talking to the viewing audience about how the market is trending, and providing up to the minute commentary, when are they doing their research?  They’re probably passing it off on some intern, an up and coming young Turk who wants to impress his celebrity boss with how much he knows, and can “predict” winners, or even disgruntled employees who want to make their boss look like a schmuck or maybe turn a quick buck by counter trading to the announced analysis.

The point is you don’t know where the information is coming from unless you do a portion of the analysis yourself.  Am I suggesting you ignore the advice of experts?  Not at all, but I am suggesting that you pick your experts carefully.  I tend to like upbeat, brash, “warts and all” personalities that will talk about how much money they’ve made, how much money they’ve lost, their alcohol problems, why they’re picking a stock, pretty much laying it all out on the table.  Those kinds of experts will tell you exactly why they’re picking stocks, and when they plan to exit the strategy.

But even with their expert advice, you should know how to read charts, how to pick your own trading plan, and how to recognize trends.  Because the guru’s spouting their wisdom to the masses can have a direct effect on the market.  Let’s say one expert has a million investors who follow his advice.  He suggests a stock play, and ten percent of his audience jumps on his advice.  That’s one hundred thousand stock trades on a particular announcement, which will affect the direction of the stock.  Another expert sets up a countertrade on the same play, and their followers jump in the market.  Now you have conflicting strategies pushing the price up, and down, and creating the roller coaster ride that so many day traders cash in on.  How?  By listening to the announcements, preparing their trading plan, and then paying close attention to the stock during the day, reading the chart, and knowing the history of the stock.

Technical analysis can show where the stock meets Resistance, or the upper level it historically won’t break, and identifying Support, or the level it won’t dip too far below.  Technical Analysis of those two nuggets of information can help identify how to play a trade.  By paying attention to the mood of the market and the information coming from experts, and combining it with your own knowledge of analysis and human behavior, you can turn more profits on more trades over a longer period of time.  Will you win every time?  Does every “Sure Thing” pony put their nose across the line first? Of course not.  But you can win more than you lose, and if you plan correctly, those wins will keep you in the money so you can keep playing the market.