How to make consistent profit from stock trading?
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I have been sharing my stock trading experience at http://stocktrendtradingsystems.blogspot.com/. This is the 1st article I posted at Hupages.com. If I see many people are interested in this article, I will write more here.
A lot of people have been thinking and trying to make money from online stock trading. Some people end up with losing money in stock trading, especially losing big money from stock trades since stock market crash in 9/2008. However, some people were able to make consistent money from stock trading, even when Nasadq dropped from 2473 t0 1265 from 9/2008 to 3/2009, by buying bear ETF fund or short stocks. The two charts shown at the right side just show you the example to make very nice gain from stock market no matter it's bull market or bear market. For example, if you trade QLD, QID or SSO or SDS using the buy/sell signal from any one of the two charts to the right, you can make >50% gain in year 2008 during which the stock market crashed.
To make money from stock market, first, you need to learn some technical analysis basics for stock trading, such as how to identify support and resistance, draw short term or intermediate trend line, how to use some technical indicators such as MACD, ADX, and so on, and how to identify chart pattern. There are some web sites offering free learning of technical analysis for stock trading. The chartschool at www.stockcharts.com is one of the best.
Understanding technical analysis for stock trading is just the basic requirement for stock trading. To make profit from stock trading, especially to make profit consistent from stock market, you need to have good stock trading systems and follow some stock trading rules strictly.
As an active trader for 11 years, I would like to share some of my stock trading tips which I learned over time and which helped me to make money from stock market consistently and survive stock market crash in 9/2008.
- Understand what kind of trading is best fit for you. Day trading, swing trading, position trading, long term investment? If you have a full time job, day trading is probably not good for you. If you can watch stock market a few times a day during market hour, you may be able to do both swing trading and postion trading. If you can not watch the stocks during market hours, you can still make money by playing position trading.
- Identify and follow the stock trend. Don't fight the stock trend, especially when the stock trend is strong. This is the key to become a successful stock trader. Stock have trends for different time frames: very short term trend, short term trend, semi-intermiediate trend, intermediate trend, long term trend. For example, if you are short term trader, if the short term trend is up and the uptrend is strong, you's d better not short stocks. And buying dips would be better approach. A lot of people who trading stock for many years still don't understand this well. If you are a position trader, you need to follow the semi-intermediate trend and intermediate trend. When the stock market crashed in 9/2008, the best approch would be sell the stocks when the trend switched to down and started to short stocks or buy bear market fund, which would have made you make tremedous money then. Hoever, most people were keep buying from the start of crash and lost a lot of money by fighting the downtrend.
- Have good trading sytems. There are hundreds of techical indicators from technical analysis for stock trading. You don't need to under each one of them. You just need find some of very useful ones, combine them into trading systems. No trading systems can be pefect and any good trading systems can have losing trades. The good trading system should have more winning trades than losing trades. And the gain per winning trade from the good trading sytems should be much higher than the loss from per losing trade. After you devlope or find good trading systems, you should stick with it to make consistent profit. The two charts shown above are the two trading systems I developed after 10+ years of trading experience. Each of the two systems can generated 50% to 60% per year if using them to trade QLD, QID or SSO, SDS.
- Trade with your plan and/or trading sytems. Don't trade with you motion. Trading with motion may make you make money sometime, but it will cause you lose money more often than winning.
- Alway use stops. Any perfect stock trade setup can turn into a losing trade. Although good trading systems can make you money from stock trading, it can not guareentee you can make money from each trade. Any perfect stock trade setup could turn into a losing trade. You want to use traing stop to protect your trading capital.
- Don't bet all your money on one trade. Stock trading is risky. Allocate only small portion to each trade. In this case, if you havea losing trade, that desn't affect you much.
- When the stock trend is on the same side of your trades and the trend is strong. You'd better set the stop and let the profit run. The trading stop may need to be adjusted over the time if you trade actively. If the trend is weak or it's against your trade, you'd better exit the trade early.
- To make money in both up and down market, you need to play both long and shorts, which means you not only buy and sell shorts, but only you are able to sell short stocks to play downtrend. In this way, you can make money in both up or down market, in both bull market and bear market. If you don't feel comfortable to short stock, your can buy bear index funds, such QID, SDS.
- Be patient and calm down during trading. The stock market is very dynamic and it could be against your trades. You need to control yourself to follow your plan or trading systems.
- Don't trade stock purely on the news. The news could have unpredictable effects on the stock movement. When the stock market is in strong uptrend, stock can keep going up disregard the bad news.
- When trading individual stocks, we also need to indentify the trend of major stock indexes. Even the individual stock has very good trading setup for buying it, you may not want to buy if the major stock market indexes such as Nasadq and SPX just starts the downtrend.
- You don't need to make big profit by trading individual stocks. Trade 2x or 3x index fund such as (QID, QLD, SDS, SSO, BGZ, BGU) can also make you to earn big gain.
Disclaimer: All the content and charts in this hub are for education only. They are not recommendation to buy or sell stocks.
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