This is a short compilation of ideas and information I have found to contribute to successful trading. Notice I said TRADING, not investing. Trading of course referring to short term opportunist strategies as opposed to investing for growth in a company.
Diversify
Most if not all of us have heard about diversifying before, but that is not to say that we know what it means. Basically, diversifying is the act of allocating funds to different investment vehicles. In our case of stocks only, that may entail owning for example, companies in different sectors or companies that have large holdings in emerging markets. The idea behind this is that more of your investments will perform successfully than not ultimately leaving profit while managing risk. For example to hedge against a decline in the value of the dollar, Warren Buffett bought stocks of companies such as Coca Cola which does around 75% of it's business outside of the
Technical and Fundamental Analysis
Michael Marcus, a successful futures trader once said who multiplied his company account 2500 fold in a 10 period ounce said "The best trades are the ones in which you have all three things working for you: fundamentals, technicals, and market tone."
Paul Tudor Jones, also known as THE macro trader who posted 100% gains five years in a row has been quoted saying "technical analysis made over half my money and fundamental analysis made the rest"
Do you see the pattern here? Technical Analysis and Fundamental Analysis are big parts of trading and influence the trading styles of the ultra successful. Granted they are only part of trading and many other criteria and attributes are needed to be successful. However, I present these two quotes to stress the importance of both.
"The methods used to analyze securities and make investment decisions fall into two very broad categories: fundamental analysis and technical analysis. Fundamental analysis involves analyzing the characteristics of a company in order to estimate its value. Technical analysis takes a completely different approach; it doesn't care one bit about the "value" of a company or a commodity. Technicians (sometimes called chartists) are only interested in the price movements in the market. " - Investopedia.com
Technical Analysis Write Up: http://www.investopedia.com/university/technical/default.asp#axzz1bXCWHAWT
Fundamental Analysis Write Up: http://www.investopedia.com/university/fundamentalanalysis/#axzz1bXCWHAWT
Emotions
Another important attribute of skilled traders is their ability to keep their emotions out of trading. No one wants to lose money, but it is impossible to have all winning trades. When one keeps emotions separate, they can make decisions of facts. With emotions, it is easy to say "it will come back" when a trade goes south and the next thing you know, your position is down 5 or 6% (relative to timeline). To manage emotion, many traders make plans ahead of time specifying how much they are willing to risk and what their target prices are for profit.
Market Psychology
How is the market going to react? The answer to this question is ever changing due to changing variables in the market. For example, the current economic situation has investors on the ropes trying to protect their money at any notice of "bad" news. If Germany announces complications with a bailout for Greece, investors with sell in anticipation of worse news. Ten minutes later, Ben Bernanke could announce the avoidance of a government shut down. That might cause the Dow Jones to rally 200 points. Apple's earnings report missed the estimates but was still strong. However since Apple is known for always exceeding expectations, the market was shocked and sold Apple down 5%. It is up to us as investors or traders to draw our own conclusions given current market conditions. The best way to do this is by keeping our own emotions out.
These are basic concepts but I hope they have helped
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