The common goal of active traders is to generate the highest profit in the shortest amount of time. Unlike the smooth sailing route of long term investing, the path to achieving success in active trading demands a lot more skill and discipline. But as traders get caught up in the complicated web of market analysis, you'll often find it hard to exclude your ego in the process.
In stock trading, being wrong is unavoidable, but staying wrong is a choice. - Mark Minervini
Remember that our goal as traders/investors is to respond to the market and not to predict it. Before considering entering a stock position, remember to ask the right questions first and work your way into answering them. This way, you'll be able to filter the relevant information from the noise.
Here are a few guided questions that you can use to further strengthen your trade strategy:
1. Ask Questions Based on Market Volume
What volume is currently higher? Buying or Selling?
Who are the institutions at the buying and selling side?
Is the daily market volume turnover high, average, or low?
What stocks are being accumulated by foreign institutions?
What stocks are being sold by foreign institutions?
What market sector show the highest demand?
What market sector show the weakest demand?
2. Ask Questions Based on Technical Analysis
What is the overall trend of the index? Uptrend, Downtrend or Sideways?
What type of play is suitable for the current trend and pattern?
Is the market near its 52 week high or 52 week low?
When looking at daily, weekly, monthly time frames, is the price near multi year support or multi year resistance?
What price candles are longer? Red or Green candles?
3. Ask Questions Based on Risk Management
What is the potential loss if the stock breaks support?
Is the price near a strong support level?
What are the key levels for profit taking?
What are the exit points if the trade turns against you?
What is the time horizon of the play?
How much of your portfolio should be allocated for the trade?
The Bottom line
Your opinion about the stock market does not really matter. What matters is what the big financial institutions think. These institutions are the ones who have the capital to move prices and shape the future price action of the market. As such, your goal as a trader is to separate your personal biases and focus on the trading activity of the market movers.
Whether you are dealing in millions or in thousands the same principle lesson applies. It is your money. It will remain with you just so long as you guard it. Faulty speculation is one of the most certain ways of losing it. - Jesse Livermore
Part of your research is to know what the big institutions are currently accumulating and disposing. The outlined guided questions will allow you to focus on the relevant information that will point you to make the right decisions.
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