From March 2000 to the middle of 2002, the NASDAQ Index lost about 70%. So much for the flawed strategy of buy and hold. This trading philosophy can be a financial disaster at times. It has been over 8 1/2 years since the NASDAQ bottomed in 2002, and as of this writing, it is not even halfway back to the 1999 high.
What is the lesson? It is essential to focus on what the market is actually telling you at the moment. Go with the current flow of the market. Analyze the market, and always know if the market is trending up, down, or moving sideways, then take appropriate action. Proper analysis would have told you, the stock market was breaking down early in 2000. Analyzing general market direction is an important component of your overall trading education.
In this article, I will go over a few of the significant elements required to be successful in the stock market, commodities market, or any other trading venue. A proper trading education will take years, just like it would to become an engineer, or an airline pilot. You simply will not be successful in the long run, unless you learn winning strategies, methods, and principles. It is also imperative you implement sound money management, and proper trading psychology.
As part of your trading education, you will need a winning methodology. It could be the break out of a base or chart pattern, on huge volume. One of my favorites is the break out from a flat base pattern. As an example, let us say a stock has been trading between 30 and 34 dollars a share for 2 months. The stock finally breaks out of the flat base, on heavy volume, as it hits 35 dollars a share. This would be a good time to buy, based on a solid methodology.
You will get a big edge if you only buy or sell stocks when you are in sync with the general market. If you only buy stocks when the general market is in a confirmed uptrend, you will be going with the flow of the market, and the odds of success will be in your favor. This is because about 75% of all stocks follow the general market direction. You will know what the general market condition is by proper implementation of daily price and volume analysis.
Technical analysis is another key in your overall trading education. Charts are a vital tool, because historically there are patterns that repeat themselves over and over again. Once you learn which patterns to look for, and trade the patterns that have proved successful over many decades, you are probably going to make a lot of money. A proper trading education is a long process, but once you understand, and can implement what it takes to be successful, you could make a fortune trading the various markets.