Credit: Many investors and traders make the mistake of assuming they they need a complex trading system to consistently profit from the stock market. On the contrary, some of the top-performing strategies are the ones with the least amount of moving parts -- they're simple. And because of their simplicity, they can be easily and consistently followed.
The methodologies my firm uses for timing the market, picking stocks, and trading options are very simple because we focus mainly on price, volume, and momentum. These three indicators are the key to success; when you use them together, you will be able to time your entries and exits during key turning points and clearly define risk/reward levels while maintaining a clear, unbiased state of mind, which allows you to trade almost emotionless.
As my trading coach taught me, if you don't have a detailed trading plan that a five-year-old could trade, then you don't have a solid strategy and will have unnecessary losses and emotional stress.
So here are a couple tips to keep things simple and emotionless.
My firm's recent trade in Infoblox Inc. ( BLOX ) began flashing several signals (price, volume, and momentum) that a bounce or rally was likely going to happen within a few weeks. This is a good example of a swing trade based purely on these main indicators.
Broad Market Outlook
Current stock market prices are starting to warn us that a market correction is near. (You can read more about this in detail in my last report, Stocks Preparing for a Correction: Buy Bad News, Sell the Good .)
We all know the market saying, "If the market doesn't shake you out, it will wait you out."
How does this work? It's simple really. During down trends and just before a market bottom, we tend to see capitulation spikes in selling. These scare the last of the long positions out of the market and suck in the greedy shorts after the move has already been made.
During an uptrend, which is what we are in now, the market makes spike highs designed to scare out the shorts and get greedy long traders to buy more, once again after the move has already been made and likely near the market top.
If you are the type of trader who always tries to pick tops and bottoms against the current trend, then you may like to know this little tip: The largest percent moves typically happen during the last 75% of the trend. What does this mean? It means when you take your position against the trend, trying to pick the dead top or bottom, you are most likely going to get caught on the wrong side of the market in a big way.
Most traders I know have been short the market for one to three weeks, and many keep emailing me that they are adding more shorts each day because they feel the market is going to top. Given that I'm a contrarian by nature in terms of what the masses are doing, if everyone is still holding on to their shorts, we likely have not seen the top just yet. Another 1-2% jump from here should be enough to shake them out though.
Editor's Note: Chris Vermeulen offers more content at his sites, TheGoldAndOilGuy.com and Traders Video Playbook.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
