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3 Reasons Why Independent Investors Have an Advantage That's Hard to Beat
By Anthony Merizzi
You've undoubtedly heard of how active the stock markets have been over the past year. In fact, some experts are describing the coming season with the best outlook they've seen in years. So how do you, as an individual investor, take advantage of these conditions?
Learn from history
First of all, recognize that the market has been around for a lot longer than most individual businesses throughout the world. And that means you have a lot of history to refer to, when trying to figure out what it's doing. So, when we see a market cycle like the recent highs are offering, it becomes clear that the methods you use to trade might be a little different than what you'd do in a slow-moving market. Or a down-trending one.
A second point to remember, to take some of the mystery out of market behaviour, is that the market moves like people. Because when it comes right down to it, who do you think is doing the buying and selling? Think of it as a huge garage sale, and you might feel a lot less intimidated by trading.
Auction emotions
Just like an auction, there are sellers who want to see their price bid up as high as possible. And there are buyers who want to keep their bid price low, and walk away with a bargain. Sure enough, when emotion runs high (like at an auction, when you've just GOT to have that item on display), those prices can run away on you. Have you ever seen that happen?
The third thing you have going for you, as an individual or independent trader, is the one that makes it far easier to stay profitable with your trading. That's because, as an individual, you can move in and out of the market much more quickly than institutional investors. Think of it this way: when large investing groups trade, like a mutual or pension fund, or banks and financial institutions, they're often dealing with a hundred thousand shares at once. Sometimes millions.
How long does it take?
So, while it's true that there's more flexibility now than ever before with trading houses, it can take days for a large transaction to be planned and approved. I've heard one trader laugh when he told me that it takes longer to get the memo written, to request a transaction at his brokerage, than it usually takes me to initiate and complete an entire trade!
What does that mean for you?
In my experience, it suggests a trading strategy that's been proven to work over and over again. And it's something you can learn to do quite easily, too. In fact, I've been showing people how to use this method to earn 1-3% a week on their money, with surprising consistency. So let's tie these three points together, with an action strategy that makes it clear for you.
Years of trading history show you people's tolerance in a given market. Sure, it doesn't always predict exactly what will happen today or tomorrow, but it shows you trends that are very real. Those trends, when viewed through the disciplines of technical analysis, offer you signals that guide your response to market moves.
Response vs. Reaction
That's key, by the way. Notice that I didn't say 'reaction' to market moves. There's got to be a clearly defined RESPONSE in your trading plan. Because knowing what to do if the market moves against you is just as important as when it goes your way.
Second, knowing that it's the same people making many of the large institutional trading decisions year after year, you can see patterns in their behaviour that suggest a sector's personality as well. Ever notice how the profits of most utilities are fairly predictable, while the price charts of the telecommunications sector show a lot more fluctuation? That's because people usually tend to do what they've always done! So, use that to your advantage.
Momentum
Finally, when you see a trend or market action setting up, move on it and let the momentum work for you. With online brokers offering quick, inexpensive access to trades for $10 or less, you can take on a trade of 500 or 1,000 shares within minutes. And, when you see the signals pointing to a change in momentum, you can get out of your position quickly, too. That way, when you reach your targets, or even if the market doesn't go quite the way you'd planned, your response to its change of direction preserves your profit. At the very least, your loss is minimized.
The key to all of this is to remove emotion from your decisions. When you're using a trading system that gives you confidence as well as results, that becomes much easier to do.
To find out how you can do this, click here to see the system I use to trade consistently and profitably. About the Author Anthony Merizzi is a trader and training coach with Vertical Financial Group. Living near Toronto, Canada, he teaches people throughout North America how to earn 1-3% per week on your money.
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