The Secret of Successful Trading

The secret of successful trading is to take a step back from the market. Trade with the big picture in mind at all times and don't follow the day to day market movement. Daily market talk can hypnotize you if you follow it too closely. You have to see the wood and not the individual trees.

Focus on the big picture. Follow the bull market and not individual stocks. The market has more influence on stock prices than any other factor. Even the best stocks decline in a bear market.

So what is the secret formula?

  1. The key is to buy when the market signals the start of a bull trend.
  2. Select leading stocks that are outperforming the market.
  3. Sell when the bull trend has ended.
  4. There are exceptions to this rule: Sell individual stocks if they move against the trend.

A simple formula that works!

You may feel that this is too simplistic. Any fool could apply this. If it was that simple surely everyone would be making money out of the market?

Ever heard of analysis paralysis? Many people study the market in such minute detail that they lose track of the big picture. It is almost impossible to predict the daily movement in the market with any degree of accuracy, but most investors can correctly predict the direction of the market over the next 5 or 10 years. The longer the time frame the greater the certainty.

So how to apply the formula?

  • How do I detect the start and end of a bull trend?
    Dow Theory holds the key.
  • What supporting evidence can I use to confirm the above signals?
    Start by Reading the Market.
  • What about using volume to confirm breakouts?
    Volume Patterns shows you how.
  • How do I select stocks that are outperforming the market?
    Market Leaders explains the basics.
  • How do I lock in profits on individual stocks?
    Use Stop Losses to protect your gains.
  • When do I cash in individual stocks?
    Follow the Exit Signals.

A word of warning! The formula may be simple but most investors find it extremely difficult to follow. Not because they don't understand, but because it runs contrary to human nature. We all get excited when we're making money, or fearful when we're losing, and our ability to make calm, rational decisions disappears like mist in the morning sun.

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