There are formulas for just about everything,
but it has been shown that the simpler the
formula or method of doing a particular task
the better it works. It has evolved down to
KISS ? Keep It Simple Stupid.
This also applies to trading in the stock
market. There are literally hundreds of
formulas, both technical and fundamental that
are easily available to investors. Each trader
has his own method he uses. Every professional
trader on the floor of the stock exchange has
his own variation on some major proven
formula. The more skilled he becomes with it
the more he feels it is the best one.
Sometimes it takes years for a trader to
settle on one method or group of methods that
he uses to signal buys and sells. It took me
many years to find that technical group that
worked for me when I was an exchange member.
For some it evolves into long term trading
and for others it can be buying and selling in
a matter of minutes. The time period is not
important. The method is. Even as a floor
trader on the commodity exchange I had only
two criteria I watched before entering into
any position.
All professional traders and investors are
aware of the single most important fact and
that is how much I am willing to lose before I
exit this new position. Every KISS formula has
an exit strategy. Every professional knows in
advance how much he will allow himself to lose
if he is wrong. The professional does not set
a limit on the winning side of a trade only on
the losing side.
Ask any full time professional and he will
tell you if he is right 50% of the time he
considers that to be phenomenal. When I was on
the floor I was only right about 40% of the
time, even about 20% and wrong about 40%. BUT
I made $3.00 for every dollar I lost. Small
losses and big winners are the key to success.
This is the key to any profitable formula ?
keeping the losses small.
When I see advertisements in the financial
papers for methods claiming to be right 80%,
90% of the time I cringe. It just can't be.
There is no trader I ever met who was that
good and I have known some exceptional
traders.
The major text on technical analysis is
"Technical Analysis of Stock Trends" by
Edwards and Magee now in the 17th printing of
the Fifth Edition that lists multitudes of
methods. They all work, but many are
complicated. A magazine called Futures Truth
analyses 200 commodity trading systems in each
issue. Fundamental Theory is equally complex.
There are software programs that allow the
investors to enter as many as 30 parameters.
The more complex it is the less chance it has
to work. And the biggest obstacle to any
program is the trader himself. He cannot
hesitate when a buy or sell signal is given.
Keep your formula simple and execute the
signals. You can be a winner.
Al Thomas' book, "If It Doesn't Go Up, Don't Buy
It!" has helped thousands of people make money
and keep their profits with his simple 2-step
method. Read the first chapter at
http://www.mutualfundmagic.com
and discover why he's the man that Wall Street
does not want you to know.
Copyright 2005