Before I go any further I am going to give you what you want. You want an easy way to make money on the stock market.
Well, here it is! (last updated 10/12/15)
A weekly trading system that has returned an average of 25% per annum for the last 12 years, through all the world's recent turmoil. By compounding and reinvesting the capital over that 12 years it would have turned $10,000 into $150,000, or $100,000 into over $1,575,000. That's not including dividends received! but also doesn't account for taxes paid as it's an individual circumstance.
This weekly trading system does just 12 trades a year or 141 trades over 12 years, averaging just over one trade a month.
The Easy Rules - here they are, free of charge!
- Only trade the Top 300 shares on the ASX and put 10% of your money in each stock.
- Select stocks priced between 10 cents and 20 dollars, they go up more quickly than more expensive stocks and yes there are plenty of stocks in that price range in the ASX 300.
- Buy the stock if it makes a 1 year high. For example: today’s price of $2 is the highest the stock has been for a year. That’s the buy signal. If there is more than one stock that week making a 1 year high, pick the cheapest one.
- Sell the stock if it at any time since it's highest recent price it falls more than 25%. For example: If you buy the stock at $2, and it rises to $4 but then falls 25% to $3, you sell. This is called the 25% Stop Loss Rule.
- Now re-employ that money into another stock that is making a 1-year high and use the same rules as 1 to 4.
That’s it! Easy, but can you do it?
The reason you can't is the reason the other 95% of traders can't. It is not your desire to trade, or your ability to read, add up or work a computer that are the issues. It's your inability to control your emotions and stick to a system, RIGHT FOR YOU that will bring you undone. That is what will make you lose and probably make you go nearly crazy. The answer to that problem is to find a system thats suits you so you can stick to it, something within your psychological tolerance.
Look at the next graph:
The above graph shows the equity curve of the system just described. The blue line is the buy and hold line of the index (theASX 300)
The big sudden leaps in equity, shown in light green, are during periods the market rallied and the system outperformed the market - a good argument for always being in the market with the right system for you. The dark green areas show when the system (using the 25% Stop Loss Rule described above) cashed you out, particularly during the Global Financial Crisis and the Euro crisis. The blue line shows a buy and hold strategy, ok when things are good, but not so when things are tricky like the past 5 years.
Is this system doing a little better than your superannuation fund? This system can be vast improved, WITH LESS PULLBACKS with a few tighter parameters, but still only trading weekly.
Most beginners have unrealistic expectations of what they can achieve from trading. It’s not so much that the returns they dream of aren’t achievable. They often are, but not for them. They bite off more than they can chew by attempting to short term trade daily. If so, they dont understand that they aren’t emotionally ready or they have no idea of what they are really trying to achieve.
Your biggest consideration needs to be your mental ability to cope with THE SYSTEM you are trading. Trading doesn’t just involve learning a new craft. It’s a self-development course as well, and that takes time.
My advice (advice I didn't take and paid dearly for until I did) is this:
- Start looking at quality medium term trading systems and methods before looking at short term. This means weekly methods.
- Learn about the two most important things in trading: position sizing and exits. Exits, not entry, are most important.
- Get used to having money in the market so you can feel the emotions of the market moves, and learn how to cope with it, if you can't cope you won't stick to the plan, you must plan the trade and trade the plan.
- Keep trades small, so you don't lose a lot if you make a mistake, and to keep your emotions calm. If you become too emotional you will make more mistakes.
- Most people over-estimate what they can handle, so pick a figure to trade with and then halve it. You will then be close to the amount you can cope with, mentally and emotionally.
My trading instruction will teach you about simple trading systems, how to understand and develop systems, the methods, the money management, the record-keeping, charting and more. But what makes it different, is that it focuses on you, how to create a simple method that you can stick to, the more simple it is the easier it is to stick to, and apart from over trading, not sticking to the plan is one of the main reasons people don't make money in the markets.