How to Trade Stocks and Invest in the Stock Market Part 3
Last week, I shared my belief that the only thing that matters in the stock market trading and investing is the price.
I discussed how our opinions of a stock do not matter, how fundamental analysis is flawed and how the news is a noisy distraction.
Last week, I introduced the reader to the use of Technical Analysis to identify trends.
Buying Low and Selling High
Sounds simple, doesn’t it?
Unfortunately, it is challenging.
It becomes simpler once we become adept at identifying trends and entry low-risk high probability entry points.
In layman’s terms, Newton’s first law of motion is “Objects tend to keep on doing what they're doing."
If we apply that law to the stock market, we can assume that once prices begin moving in a direction, they will continue.
Prices rising in an uptrend are likely to continue moving higher, while prices moving lower are likely to continue moving lower.
Our goal as traders or investors is to identify stocks in an uptrend that enables us to buy low and sell high.
To do this, we want to be Trend Followers.
Beginners and professionals use Trend Following to outperform the market and minimize drawdowns. Those who used a simple Trend Following strategy in 2008 not only avoided the stock market crash, they profited from it.
I am attracted to Trend Following for the following reasons:
It is a price-based approach.
News headlines, pundit, analysts and opinion are not necessary.
Risk management is a vital component of the strategy.
The same strategies can be applied to all asset classes.
It is not predictive. (Trend Followers do not make predictions)
The principles apply to all the time frames, whether you are a day trader or investor.
Economic data is irrelevant.
As you learn about Trend Following, you will realize that what the stock does is not necessary and that you do not even need to know the name of the company.
Trend Following applies the K.I.S.S principle, which is often the most effective solution.
Next week we will continue our discussion on Trend Following with trend identification.
In future articles, I will discuss the following that will provide you with the knowledge to manage your investments:
The terminology used in the market place used in future articles;
Understanding market structure and how all markets (stocks, bonds, commodities, foreign exchange and cryptocurrencies) behave the same way;
How I identify trades for investments using Technical Analysis;
Risk management strategies that I use;
What I believe is the Holy Grail of trading and investing (it is not what you think);
Several winning and losing trades demonstrating entries and exits.
That is all for now.
Life is Good
I enjoy discussing the markets, whether they are currencies, equities, commodities, or bonds.
Let’s have a conversation, and we can explore a new perspective of the markets that you can apply to your analysis.
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