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Stock Trading Tools And The Holy Grail
By Jobo Smith
Most people who want to trade, or are beginning to trade the markets (less than 3 years) usually try to search for tools to help them win. They go from program to program, attend seminars, get books, and generally are searching for the holy grail idea that will unlock the mystery of the markets and make the millions. They see enough stuff that "kind of works" that it continues to lead them down then path to find perfection. In reality, this perfection does not exist. Even if you had a trader sitting next to you who makes 10 million a year day trading, you would find that the nuances of knowing when to trade and not trade and stock selection are the true keys. There is no holy grail indicator or program that leads to mass riches. Sure they may use tools to assist them, but basically most of the success of any trader is knowing the proper exit strategy and money management. Almost everyone is always interested in the perfect entry point. Why? Because frankly, it sucks to buy some stock and immediatly lose money and have that continue. That initial pain leads people to try to minimize it through this search for the perfect tool. This perfect tool does not exist, but through thorough research on the web, including reviews of stock trading systems and indicators, some decent stuff can be found. Even if there was a perfect tool, the key to anything (profit wise) is how to get out. A perfect tool will predict an uptrend (or a downtrend) which will happen, but unfortunately the MAGNITUDE always gets in the way. Does the stock go 1 point up then sell, 5 points, or maybe 15 points? No one really knows until hindsight, but a skillful trader will have a gut feel based on many factors. This is where skill comes in, money management and the other finer points of trading experience. So you have a perfect tool that can call turning points, but its still possible to lose money. How? Easy. If you have no clue how much money you should target, its easy to have a winning trade turn into a losing trade. You think it can move 3 points, but after 75c it starts going down. Fine, the tool predicted the push. Even stocks that go 15 points up never do it in a straight line. Its always push, backfill, push, backfill. The issue here is a 15 point winner and a .75 point winner look identical in the beginning. The only difference is the 15 point winner turns around after the selling, pushes higher to a new higher high, then repeats the process. And even a 15 point winning trade may go against you some. So the .75 winner now goes against you. Then a bit more. Then the market sells off, and that accelerates. Eventually it hits your stopout point. But I have a perfect tool? How can I lose? Exactly what happened here happens every day and is exactly why there is no such thing as a perfect tool or indicator. This scenario usually filters a lot of people who want to trade out of the market (of trying to trade the market). Even though there is no such perfect indicator, people are trying -and think they have found it - every day. The traders that stay around longer term realize that chasing this holy grail idea is a waste of time. Its much easier to find some decent ideas for scanning stocks (to filter them), using some money management and skills to make some money. |
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May, 2012
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