My strategy of getting into the swing markets was inspired by the following quote:
“The market value of a stock will decline only so high as the current market price exceeds the sum of the market value of all the stocks held by all the people who will be paying for the same stock in about two years. If the current market price equals the sum of all the people’s shares in stocks held about now, it will be very high.”
That is the fundamental insight of a good strategy. A good strategy is to pay attention to the trends. What are the trend indicators of the market?
What are the trend indicator?
It’s not a simple rule. There are many, many factors. It may be the fact that the economy can’t grow. The stock market can crash. But the key is not the individual factor per se.
In my case the trend indicator was the stock’s price. It has been the same for 2 years. So I knew that the market’s trend would slow down.
It had to. It’s a very important rule. So the next logical step is the trade on those stocks. And that’s when the “market theory” comes to play.
What is the market theory?
At first the trader may decide he should be a strong investor. He needs to play at the high end of the market. He needs to buy stocks like Facebook, Amazon, and Apple. The stock market is the best place to be at. So he buys the market.
That’s when all the rules of the trade and the strategy come in play.
He uses the fact that the market is the best place to buy or sell because it’s close to being overvalued. Therefore the prices of the stocks may be overvalued by 10%. In my case I’m buying shares (or selling bonds) to get my dollars back.
The goal is to get that percentage back. That’s what the stock market is for.
But there are also some other ways that trade work out for the trader. That’s why we’ll cover them in a minute.
Trader trading strategies:
Before we go on we must briefly cover some trading strategies I have been using for the last 6 months. There are many ways to do the same thing. It would be hard to list them all here. So I’ll just mention the one that’s most effective for me.
I had a trade
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