How To Become A Successful, Profitable Share Trader

Date Monday, September 15th, 2008

So you want to become a successful, profitable share trader?

If you want to become a successful, profitable share trader in the stock market, you need to implement a few basic guidelines.
Listed below are a few ideas you might find invaluable.

1. Adhere to your written down plan for buying and selling shares. I.e. The amount you are going to spend, the amount you can afford to lose if things go the wrong way (2% of the total value is a good guideline)

The % profit you want to make, after allowing for brokerage etc.

The time frame you would like. (Not always possible) for the total transaction. Is it short, medium or long term?

The number of shares you want. (This depends also on your capital constraints)
Diversify don’t invest just in one area. Spread your risk over different types of companies.

2. The last high in the share price have all been higher that the one the day before. Do this for a minimum of three days to five days consecutively.

3. Plenty of liquidity meaning a good volume of shares has exchanged hands recently.

4. Buyers outnumber sellers. If the other way round, the share price will drop downwards for sure.

5. Recent news or rumours of news .i.e. Takeovers, profits etc. Only good news of course.

6. Directors buying shares {not selling} in the last 2 to 3 weeks.

7. The “Trend Lines” show a definite trend upwards. If in doubt don’t trade.

8. A visual look {the old “eye ball test”} at the most recent chart, preferably over the last month’s performance.

Again if in any doubt drop the share till next time; just add it to your watch list.
I have around 30 to 40 companies currently on my watch list. I whittle them down to around 3 -4 using those basic criteria above.
It is not a hard a fast criteria, make up some of your own preferences.
Mine is just to give you a very basic idea to help you get started.

The Law of Probabilities.

When it all boils down to it, there are no guarantees we are just working on the “Probability” of the share price going upwards.

NB If the share is going “Sideways” it is only 50- 50 probability .don’t bother this is a share going sideways and you might as well toss a coin because you are now gambling. Wait a few days and review it then.

If a share is going “Downwards” I use the probability of 70% of it continuing that way, 20 % chance of going sideways, 10% going upwards.

The next probability I use for an “Upwards” moving share price is 70% to continue upwards and 10% probability of going sideways and 20% probability of it downwards.
Remember these are only guidelines; if things don’t go to plan that is when you implement a “stop loss” {see past article if you want to know more on this.}

by Chris Strudwick

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