Saturday, December 30, 2006

Charts are useful

Charts are only useful to those who have the patience to wait, the knowledge to choose and the wisdom to strategize. Most people, especially beginners, do not have the patience to wait. They must buy and sell, just to be in action. This may be good for their brokers but is not good for their bank accounts.

A smart trader will not buy if he does not see a buy signal. Likewise, he will not sell until he sees a sell signal. It is during the base formation that you must make your plan. Wait and watch for a buy signal before you buy.

If you do not have the patience to wait and the discipline to implement your plans, charts are useless to you.

To succeed in the stock market, you must know who you are temperamentally. Can you take a loss? Can you "cut your fingers" and bear the pain? If you can’t, stock trading is probably not for you. The first loss is the best loss. Never compound your error by averaging down, especially when your first purchase is at extremely high level.

No one has the ability to win all the time. Winning and losing are part of the game. You can’t make cakes without breaking eggs. If you want to win, be prepared to lose. The important thing is to keep your losses small. Not only must you know how to use a stop-loss. You must know how to use a trailing stop-loss to lock in your profits.

The beauty of the stock market is that you can either invest or speculate or do a combination of both. For me I am more of an investor than a trader. Most of my funds are tied up with small-cap sound solid companies. I call them baby blue chips. These companies will appreciate the most over time.

I have spotted one which I shall write about, probably in my next posting. So bookmark this page and come back later.

Good luck and Happy New Year.