May 11, 2011

Trading Stocks in Upward Trends

Stock Market Buy and Sell Prices
Trading Stocks in Markets Trending up has been my favorite time to go long on a position. As I was watching the markets today (which generally fell) I thought of an analogy between nature and a discovery I had while trading stocks. I wanted to make sure I captured it in a blog posts so others (including myself) could read it at some future date. In the beginning, nearly 8 years ago, I read books on investing, and did not have any success in the market even with what I thought the books were recommending. It would be much later that I would realize the best and usually most important things I learned about trading the markets, was in actual trading. You can read a book about how to play basketball, or how to golf, but until you get out there and make your mistakes (that are great opportunities to learn and grow from)find your sweet spots, and establish your own systems and preferred approaches, you won't truly understand the game. A book on Teaching basketball may not explain properly how decision and emotions can effect a players performance directly. Just like an investing book might not tell you about the different ways the markets are manipulated, but being in the field long enough, proves to you this happens on many occasions, and with the advent of computer high speed trading, will only continue to find new ways to transform and disguise itself.

Ok, back to the analogy I had today that I mentioned above. I have watched the markets long enough to recognize stock prices in general have many of the same properties as moving water. For example, in a market that is strongly rising, signals that investors are entering the market, putting their money to work, and ultimately sending prices higher. In other words, A flow of money into the stock market, raises stock price values (more investors are betting on those companies, giving them more value) So if you put in a Market buy order, and the execution price ends up being higher than when you placed the order, I've learned this is a good thing! You want to catch the current of money that is pushing stocks higher. In this regards, I thought of a flowing current of water like a stream, flowing in one direction, with me standing on one side with a stone in hand. That stone symbolized my desire to buy a stock and throwing it in, represents that I made a Stock Purchase. The moving stream represents the rising stock market. When I cast my stone into the water, the current should immediately pick it up and carry it forward. In a stock buy execution, you enter a buy order, but your execution price is higher because that stock is rising. I remember trying to get the best price for a stock in my younger trading days. If the stock was going down, I thought I could get a bargain and buy it while it fell in value. BIG MISTAKE, This has lost me money, and regularly enough to help me learn and change this habit. I highly recommend out of advise and personal experience, do not buy a stock when its going down!! That's like throwing your stone into the moving stream of water that is moving in reverse, and saying, "Hopefully it will change direction." I learned that hope is a distraction and not enough to make a good move. You have to be precise, tactful, and even clever. If you want the current to carry your stone forward, you must wait until it's moving in the right direction. In other words, if you want to buy a stock - believing its price will go up, You have a much better chance that it actually rises if the "current" of money flowing into the market, is strong, moving the stock market in the right direction.

A Little Insurance for Rising Stocks

rising stock prices in the Stock Market
I use to miss opportunities all the time waiting for a stock to drop in price so I could buy it. Many of those same stocks never fell to the price I was waiting for, but instead ended up taking off in upward directions. Remember if the stream is moving forward, don't try to throw your rock behind it, so it will pass by you as its carried by the stream, just throw it in, and watch the current immediately pick it up and propel it forward. Wen I place market orders, I am pleased when I see the actual execution price is a little bit higher than when I placed the order. To me, experience has shown me, this is a good sign, this means your stock is already moving down stream. I know it seems counter intuitive, believe me, I know. My thinking about investing and stock trading has grown exponentially, much of it through personal experience. I remember when that would have sounded counter intuitive to me too, but that was before I really started trading a lot. I have documented my trades, my thoughts, ideas, and so forth into journals that I can study from later. Some of my best ideas have come from reading these notes and records weeks or months after I've written them. One things is clear to me from looking at my documentation over the years: Look for the long moves, the rises that move 20 to 40%. Buying a stock because you think it will go up fast in a couple days, in my opinion is dangerous, and not worth the risk. Find a stock that you believe can rise a good amount in several months. I have found for me personally, this approach tends to deliver more favorable outcomes. Worrying about small fluctuations or trying to catch fast rises, is misleading and very difficult. It can also take you away from the study of what's important, such as which industries are rising or leading markets higher and which companies you should be watching. I have begun organizing and sharing much of my documentation on a new website about investing that I'm working on. I continue to add to it everyday. Take a look!

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